r Jan' 2026

Fo
01

1 33

24

35

46

65

68
 72

84

90

101

126

144
 2 Materials Cost

1. About 50 items are required every day for a machine. A fixed cost of 50 per order is incurred for
placing an order. The inventory carrying cost per item amounts to 0.02 per day. The lead period is
32 days. What will be the Economic Order Quantity?
(a) 125 (b) 9552 (c) 500 (d) 26

2. Anuradha Company has a Mumbai Plant that manufactures OTG. One component is an XY chip.
Expected demand is for 10,000 of these chips in the year 2009. Anuradha estimates the ordering
cost per purchase order to be ₹ 250. The carrying cost for one unit of XY in stock is ₹ 5 per annum.
Compute the number of deliveries of XY in March, 2009.
(a) 10 (b) 31.64 or 32 (c) 500 (d) 26

3. The average annual consumption of a material is 18,250 units at a price of ₹36.50 per unit. The
storage cost is 20% on an average inventory and the cost of placing an order is ₹ 50. How much
quantity is to be purchased at a time?
(a) 1000 (b) 2000 (c) 750 (d) 500

4. The purchase committee of A Ltd. has been entrusted to review the material procurement policy
of the company. The chief marketing manager has appraised the committee that the company at
present produces a single product X by using two raw materials A and B in the ratio of 3:2. Material
A is perishable in nature and has to be used within 10 days from Goods received note (GRN) date
otherwise material becomes obsolete. Material B is durable in nature and can be used even after
one year. Material A is purchased from the local market within 1 to 2 days of placing order. Material
B, on the other hand, is purchased from neighbouring state and it takes 2 to 4 days to receive the
material in the store.
The purchase price of per kilogram of raw material A and B is ₹ 30 and ₹ 44 respectively exclusive
of taxes. To place an order, the company has to incur an administrative cost of ₹ 1,200. Carrying
cost for Material A and B is 15% and 5% respectively. At present material A is purchased in a lot
of 15,000 kg. to avail 10% discount on market price. GST applicable for both the materials is 18%
and the input tax credit is availed.

The sales department has provided an estimate that the company could sell 30,000 kg. in January
2024 and also projected the same trend for the entire year.
The ratio of input and output is 5:3. Company works for 25 days in a month and production is carried
out evenly.
The following queries/ calculations to be kept ready for purchase committee’s reference:

(1) For the month of January 2024, what would be the quantity of the materials to be requisitioned
for both material A and B:
(a) 9,000 kg & 6,000 kg respectively
1 CA/CS Nimeet Piti | | |
 (b) 18,000 kg & 12,000 kg respectively
(c) 27.000 kg & 18,000 kg respectively
(d) 30,000 kg & 20,000 kg respectively.

(2) The economic order quantity (EOQ) for both the material A & B:
(a) 13,856 kg & 16,181 kg respectively
(b) 16,197 kg. & 17,327 kg respectively
(c) 16,181 kg & 17,165 kg respectively
(d) 13,197 kg & 17,165 kg respectively

(3) What would the maximum stock level for material A:

(a) 18,200 kg. (b) 12,000 kg.
(c) 16,000 kg. (d) 16,200 kg.

(4) Calculate saving/ loss in purchase of Material A if the purchase order quantity is equal to EOQ
(a) Profit of ₹ 3,21,201, (b) Loss of ₹ 3,21,201.
(c) Profit of ₹ 2,52,500. (d) Loss of ₹ 2.52,500.

(5) What would the minimum stock level for material A:

(a) 1,800 kg. (b) 1,200 kg.
(c) 600 kg. (d) 2,400 kg.

5. Tropic Pvt Ltd was engaged in the business of manufacturing Product P. The product P required 2
units of Material R. The company intends to sell 24,000 units of Product P and does not wish to
retain any closing stock. However, the opening stock of Product P is 4,000 units. Raw Material R has
to be procured after considering the opening stock of R amounting to 10,000 units. The technical
team further confirms that the yield in the course of manufacture of Product P is 80% of the input.
The company presently procures its annual requirement of materials on a quarterly basis from its
regular supplier enjoying a discount of 2.5% on the invoice price of the material of ₹ 20 per unit.
Every time the company places orders for Material R, it incurs 125 for each of the order placed.

The company also has taken a rented warehouse for storing material R and the annual cost of
storage is ₹ 10 per unit. The company appointed Mr. Ta Chartered Accountant to review the cost
of inventory and provide measures of improvement of cost. After reviewing the material purchase
and consumption pattern, Mr. T suggested that the implementation of Wilson's EOQ would be
beneficial to the company. He emphasized that the change in the quantity ordered would result in
reduction of inventory carrying costs.

2 CA/CS Nimeet Piti | | |

Mr. T further reviewed the labour costing and identified that the employees were paid overtime
wages to ensure timely completion of projects. Overtime wages comprised of daily wage and 100%
of daily wages as overtime premium. Based on the cost record it was understood that every month
had 180 hours of regular working hours which was remunerated at ₹ 200 per hour and Overtime of
20 hours which was remunerated at ₹ 400 per hour. Mr. T suggested that the above time taken may
be considered as standard and a scheme of Incentive be introduced to reduce overtime cost. He
further indicated that Rowan scheme of incentive be used to measure performance and the
improved productivity per hour would be 125 units per hour.
In this regard, address the following queries in line with the suggestions provided by Mr. T to Tropic
Pvt Ltd.

1. The annual requirement of Material R to meet the target sales of 24,000 units of Product P is:
(a) 48,000 units (b) 60,000 units
(c) 40,000 units (d) 50,000 units

2. The ordering quantity as per the current inventory policy and the proposed Wilson's Economic
order quantity of Material R are:
(a) Order Quatity as per the current inventory policy 10,000 units & Economic Order Quantity
1,000 units
(b) Order Quantity as per the current inventory policy 15,000 units & Economic Order Quantity
1,225 units
(c) Order Quantity as per the current inventory policy 12,000 units & Economic Order Quantity
1,095 units
(d) Order Quantity as per the current inventory policy 12,500 units & Economic Order Quantity -
1,118 units

3. The net savings to inventory cost on migration from the current inventory policy to the Wilson's
Economic Order Quantity policy would be:
(a) Savings from EOQ as compared to current discount policy - ₹ 26,820
(b) Savings from EOQ as compared to current discount policy -₹ 20,500
(c) Savings from EOQ as compared to current discount policy -₹33,253
(d) Savings from EOQ as compared to current discount policy -₹25,546

4. Incentive payable under the Rowan Incentive scheme amounts to:

(a) ₹ 7,500 (b) ₹ 6,400 (c) ₹ 6,000 (d) ₹ 8,000

5. The savings in labour cost achieved by implementation of incentive scheme over the overtime
payments amounts to:
(a) ₹ 9,600 (b) ₹ 5,600 (c) ₹ 8,000 (d) ₹ 3,200

3 CA/CS Nimeet Piti | | |

6. ‘Axe Trade’, an unregistered supplier under GST, purchased material from Vye Lt(D) which is
registered supplier under GST. During the month of June 2024, the Axe Traders has purchased a
lot of 5,000 units on credit from Vye Ltd.
The information related to the purchase are as follows:
Listed price of one lot of 5,000 units - ₹ 2,50,000
Trade discount - @ 10% on listed price CGST and SGST
(Credit available) - 18% (9% CGST + 9% SGST)
Cash discount - @ 10%
(Will be given only if payment is made within 30 days.)

Toll Tax paid ₹ 5,000

Freight and Insurance ₹17,220
Demurrage paid to transporter ₹ 5,000
Commission and brokerage on purchases ₹ 10,000
Amount deposited for returnable containers ₹ 30,000
Amount of refund on returning the container ₹ 20,000
Other Expenses @ 2% of total cost

A 20% shortage in material on receipt is expected considering the nature of the raw material.
The payment to the supplier was made within 21 days of the purchases.

1. If Axe Traders pays the supplier within 30 days of purchase, then, what is the total amount of
cash discount received from the supplier and how it is treated to calculate material cost?
(a) ₹ 25,000 & it will not be deducted from the material cost
(b) ₹ 26,550 & it will be deducted from the material cost
(c) ₹ 26,550 & it will not be deducted from the material cost
(d) ₹ 22,500 & it will not be deducted from the material cost

2. What will be the amount of other expenses and how it is treated in material cost?
(a) ₹ 6,154.40 & it will be added with the material cost
(b) ₹ 6,280.00 & it will be added with the material cost
(c) ₹ 5,344.40 & it will be added with the material cost
(d) ₹ 5,453.47 & it will not be added with the material cost

3. What is the amount of GST and how will it be treated in cost sheet of Axe Traders?
(a) ₹ 40,500 & it will not be added with material cost
(b) ₹ 40,500 & it will be added with material cost
(c) ₹ 45,000 & it will not be added with material cost
(d) ₹ 45,000 & it will be added with material cost

4 CA/CS Nimeet Piti | | |

 4. What is the total material cost chargeable in the cost sheet of Axe Traders?
(a) ₹ 3,14,000 (b) ₹ 2,73,500
(c) ₹ 2,72,673 (d) ₹ 3,13,874

5. The number of good units and cost per unit of the materials received are:
(a) 5,000 units & ₹ 62.80 (b) 5,000 units & ₹ 54.70
(c) 4,000 units & ₹ 78.50 (d) 4,000 units & ₹ 68.38

7. ABC Ltd is a manufacturer of specialized components & needs to maintain an efficient inventory
system for its raw materials. The company has the following data regarding one of its essential raw
materials
annual demand: 36000 units
• ordering cost per order: ₹ 600
• carrying cost per unit per annum: ₹ 15
• Re-order level: 4500 units
• Lead time: 5 days
• Daily usage: 100 units
• maximum Stock level: 6000 units
Based on this information calculate:
1. What is the EOQ for ABC Ltd?
a) 1700 b) 1697 c) 1694 d) 1691

2. What is Minimum stock Level?

a) 3000 b) 3500 c) 5000 d) 4500

3. Calculate average stock level

a) 5849 b) 4349 c) 5349 d) 3849

8. XYZ Ltd has the following information available:

Product X requires 2kgs of raw material Y, opening stock of Y and X is 1000kgs and 500 units
respectively. Demand for X is 3000 units for each quarter
• Ordering cost per order = 1000
• EOQ = 700kgs
• Cost of raw material Y is Rs.125 per unit
Instead of placing order at EOQ, company places order at 2000kgs in order to get bulk discount.

1. Calculate carrying cost per unit per annum

a) 89 b) 86 c) 86.8 d) 89.8

5 CA/CS Nimeet Piti | | |

 ANSWERS

1. (c) 500 units

2 ×AD× OCPO 2 ×50 × 365 × 50
EOQ = =
CCPuPa 0.02 ×365
= 500 units

2. (a) 10
2 × 10,000 × ` 250
EOQ = = 1,000 chips
`5
Annual Demand 10,000
Number of deliveries = =
EOQ 1,000
= 10

3. (d) 500 units

2×AD× Ocpo
Economic Order Quantity (EOQ) =
Ccpupa
Where;
AD = Annual Demand,
Ocpo = Ordering cost per order,
ccpu = Carrying Cost per unit per annum
2 × 18,250units × ` 50
=
` 36.5 ×20%
1825000
= = 500 units
7.3

4. (i) (d) 30,000 kg & 20,000 kg respectively

Monthly Production of X = 30000kgs
30,000
Raw Material Required = × 5 = 50,000kgs.
3
50,000
Material A = × 3 = 30,000 kg.
5
50,000
Material B = × 2 = 20,000 kg.
5

(ii) (a) 13,856 kg & 16,181 kg respectively

Calculation of Economic Order Quantity (EOQ):

2 × Annualconsumption × Ordercost
Material A =
Carrying cost per unit p.a.

6 CA/CS Nimeet Piti | | |

 2 × (30,000 × 12) × 1,200
= = 13,856 kg.
15% of 30

2 × (20,000 × 12) × 1,200

Material B = = 16,181 kg.
5% of 44

(iii) (b) 12,000 kg.

Calculation of Maximum Stock level: Since, the Material A is perishable in nature and it required
to be used within 10 days, hence, the Maximum Stock Level shall be lower of two:
(a) Stock equal to 10 days consumption

30,000
= × 10days = 12,000 kg.
25
(b) Maximum Stock Level for Material A:
Re-order Quantity + Re-order level (Min consumption* x Min. lead time)
Where, Re-order Quantity = 15,000 kg.
Re-order level = Max. Consumption* x Max. Lead time

 30,000 
Maximum stock Level = 15,000 kg. + 2,400 kg. -  × 1days 
 25 

Stock required for 10 days consumption is lower than the maximum stock level
calculated through the formula. Therefore, Maximum Stock Level will be 12,000 kg.
(*Since, production is processed evenly throughout the month hence material
consumption will also be even.)

(iv) (b) Loss of ₹ 3,21,201

Calculation of Savings/loss in Material A if purchase quantity equals to EOQ.
Purchase Quantity = Purchase Quantity =
15,000 kg. EOQ i.e. 13,856 kg.
Annual 3,60,000 kg. 3,60,000 kg.
consumption (30,000 × 12 months) (30,000 × 12 months)
No. of orders 30 30
[Note- (i)] (3,60,000 ÷ 12,000) (3,60,000 ÷ 12,000)
Ordering Cost(a) ₹36,000 ₹36,000
(₹1200 × 30) (₹1200 × 30)
Carrying Cost (b) ₹30,375 ₹31,176
[Note- (ii)] (15% of ₹27 × 7,500) (15% of ₹30 × 6,928)
Purchase Cost (c) ₹97,20,000 ₹1,08,00,000
(for good portion) (₹27 × 3,60,000) (₹30 × 3,60,000)

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 Loss due to ₹24,30,000 ₹16,70,400
obsolescence (d) [Note- [₹27 × (30 × 3,000)] [₹30 × (30 × 1,856)]
(iii)]
Total Cost [(a) + (b) + (c) + ₹ 1,22,16,375 ₹ 1,25,37,576
(d)]
Purchasing of material - A at present policy of 15,000 kg. saves ₹ 3,21,201.
Notes: (i) Since, material gets obsolete after 10 days, the quantity in excess of 10 days
consumption i.e. 12,000 kg. are wasted. Hence, after 12,000 kg. a fresh order needs to be given.
(ii) Carrying cost is incurred on average stock of Materials purchased.
(iii) the excess quantity of material becomes obsolete and loss has to be incurred.

(v) (c) Minimum Stock Level for Material A

= Re-order level – (Average Consumption Rate x Average Re- order Period)
= 2400 – (1200 x 1.5) = 600 kgs
Re-order level = Max. Consumption* × Max. Lead time
30,000
= × 2days = 2,400 kg.
25
 30,000 30,000 
 + 
 25 25 
Average Consumption Rate = = 1,200 Kg
2
(1 + 2 )
Average Re-order Period = = 1.5 days
2

5. 1.(c) 40,000
Annual Demand of finished goods 24,000
Less: Opening Stock (4,000)
Annual Demand of finished goods to manufacture 20,000
× Kgs required per unit 2 kgs
Annual demand of raw material 40,000
 yield 80%
Annual demand of raw material 50,000
(-) Opening Stock of raw material; (10,000)
Annual demand of raw material to buy 40,000

2.(a) Order Quatity as per the current inventory policy units 10,000 units & Economic
Order Quantity 1,000
Current order size : Quaterly basis
40,000 kgs – 4 Quarters
40,000
 per quarter : = 10,000 kgs.
4

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 2 × Annual Demand ocpo 2 × 40,000 × 125
EOQ : =
ccpupa 10
= 1000 kgs

3.(b) Savings from EOQ as compared to current discount policy -₹ 20,500

Total Variable Cost (TVC) @ EOQ Total Variable Cost (TVC)
EOQ = 1000 kgs @ Current terms Order size = 10,000 kgs.
Annual Demand Annual Demand
TOC : ×OCPO TOC : ×OCPO
EOQ Ordersize
40,000 40,000
: ×125 = 5000 = ×125 = 500
1000 10000
1 1
TCC = TOC @EOQ = 5000 TCC = = ×ordersize × CCpu = 10,000× 10 = 50000
2 2
= 40000 × 20 = 8,00,000 Mat. purchase cost =
Total Cost = 8,10,000 = 40000 × 20 – 2.5% = 780,000
Total Variable Cost 830,500
Therefore Extra Cost : 8,30,500 – 8,10,000 = 20,500/-

4.(b) ₹ 6,400
Time allowed: 180 + 20 = 200 hrs (given)
Time taken – 125 F.G. - 1 hr

for 20,000 F.G. 160 hrs.

 Time saved : 200 hrs – 160 hrs = 40 hrs
Rate/hr – 200 /hr
Bonus as per rowan:
 Time saved 
Bonus =  × Time taken  rate/ hr
 Time allowed 
 40 
= × 160  200
 200 
= 6400

5.(b) ₹ 5,600
Total Labour cost under the current scheme
Basic : 180 hrs × 200 /hr = 36,000
Overtime : 20 hrs × 400 /hr = 8,000
44,000
Earnings as per rowan:
 Time saved 
Earnings = hours worked × rate/hr +  × Time taken  rate/ hr
 Time allowed 

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  40 
= 160 × 200 +  × 160  200
 200 
= 38400
Savings = 44,000 – 38,400 = 5,600/-

6. i.(a) ` 25,000 & it will not be deducted from the material cost
List Price 2,50,000
(-) Trade discount 10% of List Price (25,000)
Net Price 2,25,000
Cash Discount 10% of 2,25,000 = 22,500 to be deducted.

ii.(b) ` 6,280.00 & it will be added with the material cost

Particulars Units (`)
Listed price of Materials 5,000 2,50,000
Less: Trade discount @10% on invoice price (25,000)
Net 2,25,000
Add: GST @18% of ` 2,25,000 40,500
2,65,000
Add: Toll Tax 5,000
Freight and Insurance 17,220
Commission and Brokerage Paid 10,000
Add: Cost of returnable containers:
Amount deposited ` 30,000
Less: Amount refunded ` 20,000 10,000
3,07,720
 ` 3,07,720  6,280
Add: Other Expenses @2% of Total Cost  × 2% 
 98% 

Total cost of Material 3,14,000

Less: Shortage material due to normal reasons @20% 1,000 -
Total cost of material of goods units 4,000 3,14,000
Cost per unit (` 3,14,000/4,000 units) ` 78.5

iii.(b) ` 40,500 & it will be added with material cost

Axe Traders in an unregistered supplier in the GST; thus, GST credit is not applicable for
it. GST paid on the purchase of the material will be the part of the material cost.

10 CA/CS Nimeet Piti | | |

 iv.(a) ` 3,14,000
Please refer the solution above

v.(c) 4,000 units & ` 78.50

Please refer the solution above

7. 1.(c) 1,694 units

2 × Annual Demand × Ordering cost per order

Carrying cost p.u.p.a

2 × 36000 × 600
= 1697 units
15

2.(c) 4,000 units

Minimum stock level = Re-order level – (Avg cons × Avg LT)
= 4500 – (100 units × 5 days)
= 4000 units

3.(c) 5000 units

Average stock level:
[Link] level + Max stock level
Average stock level :
2
4000 + 6000
= = 5000
2

8. 1.(d) 89.8
Annual demand of FG (x) – 3000 × 4 Qtr = 12000 units
(-) Opening Stock 500 units
A.D. of FG to manufacture 11500
× Kgs required of raw material (y) 2 kgs
Total raw material required 23000 kgs
(-) Opening stock (1000 kgs)
Raw materials to buy 22000 kgs
2 × AD ×OCPO
EOQ =
CCpupa
2 × 22000 ×1000
700 =
CCpupa

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 2 × 22000 ×1000
7002 =
CCpupa
4, 40,00,000
490,000 =
CCpupa
4, 40,00,000
 CCpupa =
490,000
 CCpupa = 89.79 or 89.

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 3 Employee Costs & Direct Expenses
1. S.G Co. Ltd. Supplies you the following information: -
No. of workers at the beginning of the year 400
No. of workers at the end of the year 500
No. of workers resigned 35
No. of workers discharged 10
No. of replaced workers 40

The Labour Turnover Rate under Flux Method will be

(a) 7.77% or 8% (b) 2.22%
(c) 8.88% or 9% (d) 18.88% or 19%

2. Hourly rate of wages guaranteed 0.50 paisa per hour.

Standard time for producing one dozen articles - 3 hours.
Actual time taken by the workers to produce 20 dozen articles - 48 hours.
Earnings under Rowan Will be:
(a) 28.8 (b) 30
(c) 26 (d) 29.4

3. The cost accountant of Y Ltd. has computed labour turnover rates for the quarter ended 31st
March, 2009 as 5% under 'Replacement method' If the number of workers replaced during that
quarter is 30, find out the number of average workers on payroll.
(a) 6 (b) 600
(c) 60 (d) 6000

4. A worker takes 15 hours to complete a piece of work for which time allowed is 20 hours. His wage
rate is ₹ 5 per hour. Following additional information are also available:
Material cost of work ₹ 50
Factory overheads 100% of wages
Calculate the factory cost of work under the following methods of wage payments:
(i) Rowan Plan (ii) Halsey Plan
(a) Rowan – 103.75 & Halsey 108.5 (b) Rowan – 93.75 & Halsey 87.5
(c) Rowan – 83.75 & Halsey 77.5 (d) Rowan – 94.75 & Halsey 85.5

5. The labour turnover rates for the quarter ended 30th June, 2024 are computed as 14%, 8% and
6% under Flux method, Replacement method and Separation method respectively. If the number
of workers replaced during 1st quarter of the financial year 2024-25 is 36, COMPUTE the
following:
(i) The number of workers recruited and joined; and
(ii) The number of workers left and discharged.

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 (a) Recruited & joined – 450 & Left & Discharged 27
(b) Recruited & joined – 27 & Left & Discharged 27
(c) Recruited & joined – 36 & Left & Discharged 27
(d) Recruited & joined – 63 & Left & Discharged 27

6. If the amount of wages under Halsey plan is ₹ 420, total time allowed is 8 hours and the
guaranteed time rate is ₹ 60 per hour. What is the total time saved by the worker?
(a) 2 hours (b) 3 hours
(c) 6 hours (d) 3.5 hours

7. Phalsa Ltd. pays its workers on time-basis because their services cannot be tangibly measured.
The company's normal working week includes 5 days of 8 hours each. Sometimes, the workers
needs to work late at night which was 3 nights of 3 hours each for the current week. The average
output produced per worker for the week is 120 units.
Information regarding incentive rate is as follows:
Rate of Payment Day shift: ₹ 320 per hour
Night shift: ₹ 450 per hour
However, this time-basis payment made workers lazy, making their expected output lower. As
workers started doing more of the night shifts for higher earnings with minimal impact on the
outputs, the company decided to shift on to a system of payments on output basis.

Information regarding amended incentive rate is as follows:

Time-rate (as usual) : ₹ 320 per hour
Basic time allowed for 15 units : 5 hours
Piece-work rate : Add 15% to basic piece-rate
In the amended incentive system, the normal weekly working hours remained the same while
production increased to 135 units.
CALCULATE the labour cost per unit as per the existing incentive system, along with the amended
incentive system.
(a) ₹ 140.42 and ₹ 122.67 respectively
(b) ₹ 124.81 and ₹ 138.00 respectively
(c) ₹ 124.81 and ₹ 122.67 respectively
(d) ₹ 140.42 and ₹ 138.00 respectively

8. Suppose the units of a product are produced at the rate of 4 units per useful direct labour hour.
Direct labour idle time is 10% of hours paid for. Sales of 1,000 units are budgeted and finished
goods stock is expected to rise by 100 units. The budgeted direct labour hours for the production
would be:
(a) 306

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 (b) 250
(c) 275
(d) 400

9. The board of the J Ltd. has been appraised by the General Manager (HR) that the employee
attrition rate in the company has increased. The following facts has been presented by the
GM(HR):
(1) Training period of the new recruits is 50,000 hours. During this period their productivity is
60% of the experienced workers. Time required by an experienced worker is 10 hours per
unit.
(2) 20% of the output during training period was defective. Cost of rectification of a defective
unit was 25.
(3) Potential productive hours lost due to delay in recruitment were 1,00,000 hours.
(4) Selling price per unit is 180 and P/V ratio is 20%.
(5) Settlement cost of the workers leaving the organization was 1,83,480.
(6) Recruitment cost was 1,56,340
(7) Training cost was 1,13,180

You being an associate finance to GM(HR), has been asked the following questions:
(1) How much quantity of output is lost due to labour turnover?
(a) 10,000 units (b) 8,000 units
(c) 12,000 units (d) 12,600 units

(2) How much loss in the form of contribution, the company incurred due to labour turnover?
(a) ₹ 4,32,000 (b) ₹ 4,20,000
(c) ₹ 4,36,000 (d) ₹ 4,28,000

(3) What is the cost repairing of defective units?

(a) ₹ 75,000 (b) ₹ 15,000
(c) ₹ 50,000 (d) ₹ 25,000

(4) Calculate the profit lost by the company due to increased labour turnover.
(a) ₹ 7,50,000 (b) ₹ 15,00,000
(c) ₹ 5,00,000 (d) ₹ 9,00,000

(5) How much quantity of output is lost due to inexperience of the new worker?
(a) 1,000 units (b) 2,600 units
(c) 2,000 units (d) 12,600 units

15 CA/CS Nimeet Piti | | |

10. Green Manufacturing Ltd. is a medium-sized manufacturing company that uses different wage
incentive schemes to motivate its workers. The company recently adopted the Halsey Piece Rate
System for its production workers in Division A and the Rowan Piece Rate System for its workers
in Division B. Both divisions manufacture similar products but differ in performance, employee
turnover, and worker satisfaction.

In Division A (Halsey system), the standard time to complete a job is 5 hours, and the hourly rate
is ₹100. An employee named Ravi completes the job in 4 hours. Under the Halsey scheme, the
worker is entitled to 50% of the time saved, which directly influences Ravi's total earnings.
In Division B (Rowan system), the standard time to complete a job is 6 hours, and the hourly rate
is also ₹100. An employee named Sita completes the job in 5 hours. The Rowan scheme provides a
proportionate increase in wages based on the time saved relative to the standard time, affecting
Sita's total earnings. Employee Turnover has also been a point of concern for Green
Manufacturing Ltd. In Division A, the employee turnover ratio stands at 20%, while Division B has
a lower employee turnover ratio of 15%. Management is evaluating whether the incentive schemes
are influencing worker retention and overall productivity.

Furthermore, the company conducted an employee satisfaction survey. In Division A, 65% of

workers reported feeling dissatisfied with the incentive system, citing that they don’t feel
adequately rewarded for their performance. On the other hand, Division B’s satisfaction level was
much higher, with 85% of employees expressing satisfaction with the Rowan system, indicating a
potential correlation between the wage system and employee retention.

1. Calculate Bonus to be paid to Ravi as per Rowan system

(a) ₹ 70 (b) ₹ 60
(c) ₹ 50 (d) ₹ 80

2. Calculate effective hourly rate of Sita

(a) ₹ 111 (b) ₹ 110
(c) ₹ 117 (d) ₹ 120

11. ABC Manufacturing Ltd. employs 500 workers. Over the past year, 80 employees left the company
(30 were separations, and 50 were replacements). The company has also been analyzing labor
efficiency using both the Halsey and Rowan plans to incentivize workers.
• Total wages paid under the time-rate system: ₹2,00,000.
• The standard time to produce 100 units is 50 hours.
• Worker A took 40 hours to complete 100 units.
• Time rate: ₹50 per hour.

16 CA/CS Nimeet Piti | | |

Based on the given case, answer the following:
1. What is the Labour Turnover Rate using the Flux Method?
(a) 10% (b) 16%
(c) 18% (d) 20%

2. What is the Separation Rate?

(a) 5% (b) 6
(c) 10% (d) 12%

3. If Worker A is paid under the Halsey Plan with a 50% bonus, what is Worker A’s total
earnings for producing 100 units?
(a) ₹2,250 (b) ₹2,500
(c) ₹2,750 (d) ₹3,000

4. If Worker A is paid under the Rowan Plan, what will be his total earnings for producing
100 units?
(a) ₹2,400 (b) ₹2,500
(c) ₹2,600 (d) ₹2,700

17 CA/CS Nimeet Piti | | |

 ANSWERS

1. (d) 18.88% or 19%

Calculation of average no. of workers during the period:-
Average no. of workers

=
(No. of workers in the beginning of the period + No. of workers at the end of the period)
2
( 400 + 500 ) = 450
=
2

Labour Turnover Rate =

=
(No. of workers left during the period No. of workers replaced during the period) × 100
(Average no. of workers during the period)
( 45 + 40 )
= × 100 = 18.8%
450

2. (a) 28.8
A. Wage rate per hour = 0.50
B. Standard time allowed = 3 hours per dozen
C. Actual production = 20 dozens
D. Standard time allowed for 20 dozens [B x C] 3 hours x 20 dozens = 60 hours
E. Actual time taken to produce 20 dozens = 48 hours
F. Time saved [D - E] = 60 - 48 = 12 hours
Earnings =
Under Rowan Plan
 Time taken  
(Actual Time Taken x Time Rate ) + Time saved x   x time rate 
  Time allowed  
  48  
= ( 48 hours x 0.50 ) + 12 x   x 0.50 
  60  
= (48 hours x 0.50) + (12 x (48/60) x 0.50]
= 24 + 4.80
= Rs. 28.80

3. (b) 600
Average number of workers on payroll:
Numberorworkers replaced
Labour turnover rate (Replacement method) = × 100
Averagenumberon payroll
5 30
or, =
100 Average numberon payroll

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 30 × 100
Or, Average number of workers on payroll = = 600
5

4. (b) Rowan – 93.75 & Halsey 87.5

₹
(i) Rowan Plan: Normal time wage = 15 hours @5 /hr 75
 Time saved  5  18.75
Bonus =  × Time taken  rate / hr=  ×15  5
 Time allowed   20 
93.75
(ii) Halsey Plan: Normal time wage = 15 hours @5 hr 75
Bonus = 50% of (Time saved) rate/hr 50% (5 hrs) x 5/hr 12.5
87.5

5. (c) Recruited & Joined 36 & left 27

[Link] workers replaced
Labour Turnover Rate (Replacement method) =
Average [Link]
8 36
Or, =
100 Average [Link]
Or, Average No. of workers = 450

[Link] workers separated

Labour Turnover Rate (Separation method) =
Average [Link]
6 [Link] workers separated
Or, =
100 450
Or, No. of workers separated = 27

Labour Turnover Rate (Flux Method)

[Link] + [Link] ( Joinings )
=
Average [Link]
14 27 + [Link] ( Joinings )
Or, =
100 450
Or, 100 (27 + No. of Accessions) = 6300
Or, No. of Accessions = 36
(i) The No. of workers recruited and joined = 36
(ii) The No. of workers left and discharged = 27

19 CA/CS Nimeet Piti | | |

6. (a) 2 hours
Let the time taken be x
Time Allowed = 8 hrs (given)
Time Taken =x hrs
Time saved = (8 - x) hrs
Rate/hr = 60
Wages = 420.
Earnings as per halsey
Earnings = hrs worked × rate/hr + [50% Time saved × rate/hr]
420 = x × 60 + 50% (8 - x) × 60
420 = 60x + (8 - x)30
420 = 60x + 240 - 30x
420 – 240 = 30x
180 = 30x
 x = 6hrs.
Time saved will be 8-x hrs i.e. 8-6hrs = 2hrs

7. (a) ₹ 140.42 and ₹ 122.67 respectively

Calculation of existing labour cost per unit (time basis)
Item Calculation Value
Normal weekly hours 5 days×8 hours 40 hours
Night shift hours 3 nights×3 hours 9 hours
Average production per week 120 units
Weekly wages:
Normal shift (40 hours×₹320) ₹12,800
Night shift (9 hours×₹450) ₹4,050
Total wages ₹12,800+₹4,050 ₹16,850
Labour cost per unit 120 units₹16,850 ₹140.42

Calculation of amended labour cost per unit (piece basis)

Item Calculation Value
Production rate 15 units produced in 5 hours
Hours required to produce 135 units (15 units5 hours)×135 units 45 hours
Labour cost of producing 135 units:
At basic time rate (45 hours×₹320) ₹14,400
Add: Bonus @ 15% on basic Piece rate [(135 units₹14,400)×15%]×135 units ₹2,160
Earning for the week ₹14,400+₹2,160 ₹16,560
Labour cost per unit 135 units₹16,560 ₹122.67

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8. (a) 306
Total production required = Budgeted sales + Increase in finished goods stock
= 1,000+100=1,100 units
Production rate = 4 units per useful direct labour hour
1,100 𝑢𝑛𝑖𝑡𝑠
Useful hours = 4 𝑢𝑛𝑖𝑡𝑠/ℎ𝑜𝑢𝑟 = 275 hours
Useful hours = 90% of paid hours:
Paid hours = 275/90% = 305.55 = 306 hours

8. (c) 12,000 units

if 50,000 hrs were by experienced workers, output would have been 5,000 units
(50,000hrs/10 hrs)
50,000hrs 3,000 units
but output by inexperienced workers in 50,000 hrs
16.666hr
10 hrs – 60%.work
 100% work
16.6666 hr
.: Output lost due to inexperience of new worker 2,000 units
Output Lost due to delay in filling various 100,000 hrs/10 hrs pu 10,000 units
Total output lost 12,000 units
× 180 pu
× 20%
Loss of contribution 4,32,000
Defective rectification cost (3000 units × 20% × 25) 15,000
Recruitment 1,56,340
Settlement 1,83,480
Training 1,13,180
Total Loss due to employee turnover 9,00,000
2. (a) ₹ 4,32,000 - refer working note above
3. (b) ₹ 15,000 - refer working note above
4. (a) ₹ 9,00,000 - refer working note above
5. (c) 2,000 units - refer working note above

9. 1.(d) ` 80
Time allowed – 5 hours
Time taken - 4 hours
Time saved - 1 hour
rate /hr - 100/hr
 Time saved 
Bonus Under rowan : = × Time taken  rate / hr
 Time allowed 

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 1 
=  × 4 100 = 80
5 

2.(c) ` 117
Time allowed - 6 hours
Time taken - 5 hours
Time saved - 1 hour
Rate/hr - 100
Earnings under rowan,
 Time saved 
Earnings = hours worked x rate/hr +  × Time taken  rate / hr
 Time allowed 
1 
= 5 × 100 +  × 5  100
6 
= 583.33
583.33
 Effective hourly rate = = 116.66 or 117
5 hours

10. 1. (b) 16%

workers @ the beginning - 500
workers @ the end -
@the beginning - 500
Less: Left - (30)
Add: replaced - 50
workers @ the end - 520
@the beginning + @ the end
Average number of workers =
2
500 + 520
= = 510
2
separated + replaced tnewly recruited
Flux method:
Average no. of workers
= 30 + 50 + 0
×100 = 15.68% or 16%
510

2. (b) 6%
no. of workere separated
Separation method = ×100
Average no. of workers
30
= ×100 = 5.88% or 6%
510

3.(a) ` 2,250
Time allowed : 50hrs
Time taken : 40 hrs

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 Time saved : 10 hrs
rate /hr : 50/hr
Earnings under halsey:
Earnings = hrs worked x rate/hr + (50% × time saved x rate/hr)
= 40 x 50 + 50%. (10) × 50
= 2,250

4. (a) ` 2,400
Time allowed: 50hrs
Time taken : 40 hrs
Time saved : 10 hrs
rate /hr : 50/hr
Earnings under Rowan:
 Time saved 
Earnings hrs wkd × rate/hr +  × Time taken  rate / hr
 Time allowed 
 10 
= 40 × 50 +  × 40  50
 50 
= 2,400

23 CA/CS Nimeet Piti | | |

 4 Overheads

1. The following data relate to the overhead expenditure of a contract cleaner at two activity levels:
Square meters cleaned 6,375 7,550
Overheads ₹ 36, 975 ₹ 41, 792.5
What is the estimate of the overheads if 8,100 square meters are to be cleaned?
(a) 44047.5 (b) 44074.5 (c) 44704.5 (d) 47074.5

2. The accountant for Brilliant Tools Ltd applies overhead based on machine hours. The budgeted
overhead and machine hours for the year are ₹ 1,30,000 and 8,000 hours respectively. The actual
overhead and machine hours incurred were ₹ 1,37,500 and 10,000 hours. The cost of goods sold
and inventory data compiled for the year is as follows:
Direct Material. ₹ 25,000
Cost of Goods Sold ₹ 2,25,000
Units: WIP 50,000 and Finished Goods 75,000
What is the amount of over/under absorbed overhead for the year?
(a) Over absorbed by ₹ 25,000
(b) Under absorbed by ₹ 25,000
(c) Over a absorbed by ₹ 32,500
(d) Under absorbed by ₹ 32,500

3. ABC Manufacturing allocates its factory overhead costs based on machine hours. The total
estimated overhead cost for the year is ₹ 6,00,000, and the company expects to use 30,000
machine hours. During the year, job A used 300 machine hours. What amount of overhead costs
should be allocated to this job?
(a) ₹ 4,000 (b) ₹ 6,000
(c) ₹ 10,000 (d) ₹ 8,000

4. Based on the data below, what is the amount of the overhead under-/over- absorbed?
Budgeted overhead - ₹ 5,25,000
Budgeted machine hours - 17,500
Actual machine hours - 17,040
Actual overheads - ₹ 5,20,000
(a) 5,000 under-absorbed (b) 8,800 under-absorbed
(c) 8,800 over-absorbed (d) 5,000 over-absorbed

5. Gaarmentz Ltd. run a sewing factory for medical garments. But, the company suffers from the
limiting factor i.e. labor. Each sewing machine needs 100% attention of one person at a particular
point of time to operate it. The company has 8 number of alike sewing machines on which 8

24 CA/CS Nimeet Piti | | |

 operators work separately. The following particulars are furnished for a six months period:
Paid hours for all the 8 operators 9,594 hours
Effective working hours for all the 8 operators 9,360 hours
Average rate of wages per day of 8 hours per operator ₹ 110
Power consumed ₹ 60,125
Supervision and Indirect Labour ₹ 21,450

The following particulars are given for a year:

Insurance ₹ 4,68,000
Sundry Expenses ₹ 7,15,000
Depreciation charged is 10% on the original cost of all the sewing machines.
Repairs and Maintenance comes to 5% of the value of all the sewing machines.
The original cost of all the sewing machines works out to ₹ 41,60,000

CALCULATE the Comprehensive Machine Hour Rate.

(a) ₹ 215.86
(b) ₹ 217.99
(c) ₹ 116.43
(d) ₹ 119.34

6. PMP Limited manufactures a single product and absorbs the production overheads at a pre-
determined rate of ₹ 20 per machine hour. At the end of financial year 2024-25, it has been found
that actual production overheads incurred were ₹ 12,00,000. It included ₹ 80,000 on account of
‘written off’ obsolete stores and ₹ 30,000 being the wages paid for the strike period under an
award. The actual machine hours worked during the period were 50,000 hours. The production and
sale were 20,000 units and 18,000 units respectively.
What will be the amount of under-absorbed production overhead to be charged to Cost of Sales ?
(A) ₹ 91,000
(B) ₹ 90,000
(C) ₹ 81,000
(D) ₹ 80,000

7. JMS Limited, a soft drink company, is intending to introduce a new product viz. ‘Herbs Infused
Mineral Water’ to the market. Annual sales of this new product is estimated at 36,000 units with a
selling price of ₹ 75 per unit. The cost estimates for this new product are as follows :
Elements of Cost Amount (₹)
Direct material consumed 9,50,000
Direct labour cost 5,93,750

25 CA/CS Nimeet Piti | | |

 Manufacturing overheads (variable) 2,85,000
Manufacturing overheads (fixed) 1,90,000
General & Administration overheads (variable) 1,42,500
General & Administration overheads (fixed) 2,13,750
Selling and distribution overheads (variable) 80,750

Selling and distribution overheads (fixed) 64,250

There will be no closing stock of ‘Herbs Infused Mineral Water’.
What is the ‘Cost of production’ and ‘Total Cost’ as per Absorption costing ?
(A) ₹ 18,28,750 and ₹ 27,00,000
(B) ₹ 19,71,250 and ₹ 25,00,000
(C) ₹ 20,18,750 and ₹ 25,20,000
(D) ₹ 17,67,000 and ₹ 26,20,000

8. During half year ending inter departmental review meeting of P Ltd., cost variance report was
discussed and the performance of the departments were assessed. The following figures were
presented.
For a period of first six months of the financial year, following information were extracted from
the books:
Actual production overheads ₹ 34,08,000
The above amount is inclusive of the following payments made:
Paid as per court's order ₹ 4,50,000
Expenses of previous year booked in current year ₹ 1,00,000
Paid to workers for strike period under an award ₹4,20,000
Obsolete stores written off ₹ 36,000

Production and sales data for the six months are as under:
Production:
Finished goods 1,10,000 units
Works-in-progress(50% complete in every respect) 80,000 units
Sales:
Finished goods 90,000 units
Machine worked during the period was 3,000 hours.
At the of preparation of revenue budget, it was estimated that a total of 50,40,000 would be required
for budgeted machine hours of 6,000 as production overheads for the entire year.
During the meeting, a data analytic report revealed that 40% of the over/under-absorption was
due to defective production policies and the balance was attributable to increase in costs.
You were also present at the meeting; the chairperson of the meeting has asked you to be ready
with the followings for the performance appraisal of the departmental heads:

26 CA/CS Nimeet Piti | | |

 (i) How much amount of production overhead has been recovered (absorbed) upto the end of
half year end?
(a) ₹ 25,20,000 (b) ₹ 34,08,000
(c) ₹ 24,00,000 (d) ₹ 24,60,000

(ii) What is the amount of overhead under/ over absorbed?

(a) ₹ 1,18,000 over-absorbed (b) ₹ 1,18,000 under- absorbed
(c) ₹ 18,000 over-absorbed (d) ₹ 18,000 under-absorbed

(iii) What is the supplementary rate for apportionment of over/under absorbed overheads over
WIP, Finished goods and Cost of sales?
(a) ₹ 0.315 per unit (b) ₹ 0.472 per unit
(c) ₹ 0.787 per unit (d) ₹ 1 per unit

(iv) What is the amount of over/under absorbed overhead apportioned to Work in Progress?
(a) ₹ 9,440 (b) ₹ 42,480
(c) ₹ 18,880 (d) ₹ 70,800

9. Litto Itd. is a manufacturing company which has as a machine shop cost centre that contains three
machines of equal capacities. To operate these three machines nine operators are required i.e. three
operators on each machine. Operators are paid ₹ 20 per hour. The factory works for fourty eight
hours in a week which includes 4 hours set up time. The work is jointly done by operators. The
operators are paid fully for the fourty eight hours. In additions they are paid a bonus of 10 per
cent of productive time. Costs are reported for this company on the basis of thirteen four-weekly
period
✓ The company for the purpose of computing machine hour rate includes the direct wages of
the operator and also recoups the factory overheads allocated to the machines. The following
details of factory overheads applicable to the cost centre are available:
✓ Depreciation 10% per annum on original cost of the machine. Original cost of each machine is
₹ 52,000.
✓ Maintenance and repair per week per machine is ₹ 60.
✓ Consumable stores per week per machine are ₹ 75.
✓ Power: 20 units per hour per machine at the rate of 80 paise per unit. No power is used during
the set-up hours.

Apportionment to the cost centre: Rent per annum ₹ 5,400, Heat and Light per annum ₹ 9,720,
foreman's salary per annum ₹ 12,960 and other miscellaneous expenditure per annum ₹ 18,000.

27 CA/CS Nimeet Piti | | |

 i. What is the effective machine hour for four-week period?
(a) 170 hours (b) 176 hours
(c) 189 hours (d) 192 hours

ii. What is the bonus charges and power expenses for four- week period?
(a) ₹ 1,056 and ₹ 2,816 (b) ₹ 1,562 and ₹ 3,560
(c) ₹ 1,240 and ₹ 3,325 (d) ₹ 860 and ₹ 2,450

iii. What is the machine expenses for four-week period?

(a) ₹ 10,000 (b) ₹ 17,914
(c) ₹ 15,944 (d) ₹ 15,024

iv. What is the machine hour rate?

(a) ₹ 99.51 (b) ₹ 92.25
(c) ₹ 105.22 (d) ₹ 86.90

10. XYZ Ltd. manufactures two products, A and B, in its factory, which has three departments: two
production departments (Machining and Assembly) and one service department (Maintenance). The
following details are provided for the apportionment and accounting of overheads:
Machining department overheads: ₹ 1,50,000
Assembly department overheads: ₹ 75,000
Maintenance department overheads: ₹ 40,000
Machine hours in the Machining department: 5,000 hours
Labour hours in the Assembly department: 10,000 hours
The overheads of the Maintenance department are to be reapportioned to Machining and Assembly
departments in the ratio 3 : 2.
Additional Information:
Product A uses 1,200 machine hours and 3,000 labour hours.
Product B uses 800 machine hours and 2,000 labour hours.

1. What is the Machine Hour Rate for the Machining department?

(a) ₹ 35 per hour (b) ₹ 36.40 per hour
(c) ₹ 34.80 per hour (d) ₹ 32.60 per hour

2. What is the total overhead cost allocated to Product A?

(a) ₹ 69,060 (b) ₹ 68,060
(c) ₹ 70,900 (d) ₹ 69,090

28 CA/CS Nimeet Piti | | |

11. ABC Manufacturing Ltd. maintains separate financial and cost accounting records. The company uses
absorption costing for its cost accounting system. The following information is available for the
month of September:
Total overheads incurred (financial accounts): ₹1,50,000
Total overheads absorbed (cost accounts): ₹1,40,000
Direct materials cost: ₹80,000
Direct labour cost: ₹60,000
Selling and distribution overheads: ₹20,000
Administrative overheads: ₹15,000
Over/under absorption of overheads: Not adjusted in the cost accounts for September.
At the end of the month, a reconciliation statement is prepared to compare the profit as per the
cost accounts with the profit in the financial accounts. The cost accounts do not account for
over/under-absorbed overheads directly, but it is adjusted in the reconciliation statement.

1. What is the amount of over/under absorption of overheads for September?

(a) ₹ 5,000 Over-absorbed (b) ₹ 10,000 Over-absorbed
(c) ₹ 10,000 Under-absorbed (d) ₹ 5,000 Under-absorbed

2. If the profit as per the cost accounts is ₹ 50,000 before reconciliation, what will be the
reconciled profit after adjusting for the under-absorbed overheads?
(a) ₹ 40,000 (b) ₹ 50,000 (c) ₹ 45,000 (d) ₹ 60,000

3. In overhead accounting, what would typically happen if overheads are consistently under-
absorbed?
(a) The company may need to increase its overhead absorption rate
(b) The company should decrease its overhead absorption rate
(c) The company will always show higher profits in cost accounts
(d) There is no need to adjust the overhead absorption rate

29 CA/CS Nimeet Piti | | |

 ANSWERS

1. (a) ₹ 410
1. Variable overheads per square metre:
Extra m² cleaned = 7,550 – 6,375 = 1,175
Extra overhead cost = ₹ 41792.5 - ₹ 36,975 = ₹ 4817.5
4,817.5
Variable overhead per m² = = ₹ 4.10
1,175

2. Fixed overhead:
₹
Total overheads of cleaning 6375 m² 36,975
Variable overheads = 6375 x ₹ 4.10 26,137.5
Fixed overhead (₹ 36,975 - ₹ 26,137.5) 10,837.5

3. Total overheads for 8100 m²:

₹
Variable overhead = 8100 x ₹ 4.10 33,210
Fixed overhead 10,837.5
Total Overheads 44,047.5

2. (a) Overabsorbed by ₹ 25,000

Budgeted Overhead
Predetermined Overhead Rate =
Budgeted hours

130,000
i.e. = ₹ 16.25 per hour.
8,000
Hence, absorbed overhead = 10,000 hrs × 16.25 = ₹ 1,62,500.
Since actual overhead incurred were ₹ 1,37,500
Hence the overhead were over absorbed by 1,62,500 - 1,37,500 = ₹ 25,000.

3. (b) ₹ 6,000
Budgetd Overheads 6, 00, 000
= = 20 /hr
Budgeted hours 30, 000hrs
For Job: 300 m/c hrs × 20/hr = ₹ 6,000

4. (b) 8,800 under absorbed

Budgetedoverheads ` 525, 000
= = 30 / machinehr
Budgetedm/ chrs 17,500
Amount recovered (17,040 m/c hrs × 30/ m/c hr) ₹ 5,11,200

30 CA/CS Nimeet Piti | | |

 Amount incurred ₹ 5,20,000
Under-absorbed ₹ 8,800

5. (d) ₹119.34
Computation of Comprehensive Machine Hour Rate
Particulars Amount for six months (₹)
Operators' wages paid [(9,594 hrs./ 8 hrs.) ×₹110] 1,31,918
Power consumed 60,125
Supervision and indirect labour 21,450
Insurance (₹4,68,000/2) 2,34,000
Sundry expenses (₹7,15,000/2) 3,57,500
Depreciation [(₹41,60,000×10%)/2] 2,08,000
Repair and maintenance [(5%×₹41,60,000)/2] 1,04,000
Total Overheads for 6 months 11,16,993
Comprehensive Machine Hour Rate 119.34
(9,360 hours/₹11,16,993)

6. (C) ₹ 81,000
Total actual overheads = 12,00,000
Less: Abnormal items (80,000 + 30,000) = 1,10,000
Normal overheads = 10,90,000
Overheads absorbed = 50,000 × 20 = 10,00,000
Under-absorbed = 10,90,000 – 10,00,000 = 90,000
Share for Cost of Sales = 90,000 × (18,000 ÷ 20,000) = 81,000
Hence, under-absorbed overhead charged to Cost of Sales = ₹ 81,000.

7. (C) ₹ 20,18,750 and ₹ 25,20,000

Cost of Production (Absorption Costing) = Direct Material + Direct Labour + Variable
Manufacturing Overheads + Fixed Manufacturing Overheads
= 9,50,000 + 5,93,750 + 2,85,000 + 1,90,000
= 20,18,750
Total Cost = Cost of Production + Variable Admin 1,42,500 + Fixed Admin 2,13,750 + Variable
Selling & Distribution 80,750 + Fixed Selling & Distribution 64,250
= 20,18,750 + 1,42,500 + 2,13,750 + 80,750 + 64,250
= 25,20,000
Cost of Production = ₹ 20,18,750 and Total Cost = ₹ 25,20,000.

31 CA/CS Nimeet Piti | | |

8. (i) (a) ₹ 25,20,000
(ii) (a) 1,18,000 over-absorbed
Amount Amount
(₹) (₹)
Total production overheads actually incurred during the 34,08,000
period
Less: Amount paid to worker as per court order 4,50,000
Expenses of previous year booked in the current year 1,00,000
Wages paid for the strike period under an award 4,20,000
Obsolete stores written off 36,000 10,06,000
24,02,000
Less: Production overheads absorbed as per machine 25,20,000
hour rate (3,000 hours × ₹ 840*)
Amount of over absorbed production overheads 1,18,000

* Budgeted Machine hour rate (Blanket rate) calculated in part (i)

(iii) (b) ₹ 0.472 per unit

Accounting treatment of over absorbed production overheads: As, 40% of the over absorbed
overheads were due to defective production policies, this being abnormal, hence should be
credited to Costing Profit and Loss Account.
Amount to be credited to Costing Profit and Loss Account
= ₹ 1,18,000 × 40% = ₹ 47,200.
Balance of over absorbed production overheads should be distributed over Works in
progress, Finished goods and Cost of sales by applying supplementary rate*.
Amount to be distributed = ₹ 1,18,000 × 60% = ₹ 70,800

` 70,800
Supplementary rate = = ` 0.472 perhour
1,50,000 units

(iv) (c) ₹ 18,880

Apportionment of over absorbed production overheads over WIP, Finished goods and Cost of
sales:
Equivalent completed Amount
units (₹)
Work-in-Progress (80,000 units × 50% ×0.472) 40,000 18,880
Finished goods (20,000 units × 0.472) 20,000 9,440
Cost of sales (90,000 units × 0.472) 90,000 42,480
Total 1,50,000 70,800

32 CA/CS Nimeet Piti | | |

9. Statement showing TC for one machine, four weeks
Operator’s wages 12,576
52000 × 10% 400
Depreciation × 4 weeks
52 weeks
Maint. (60/week × 4 weeks) 240
Stores (75/ weeks × 4 weeks) 300
Power (44 hrs/ week × 4 weeks × 20 units × 0.8) 2,816
Apportioned Costs: Rent 5,400
Heat 9,720
Salary 12,960
Other Misc 18,000
46,080 1 1,182
× 4 weeks × machines
52 weeks 3
Total Cost 17,514
 Productive hrs. rate [48 hrs – 4 hrs × 4 weeks] 176 hrs
Machine hour rate 99.51
Operator’s wages : 52.4 hrs/week × 4 weeks × 30 prs × 20/hr

[48 hrs + 10% of 44 hrs] {Bonus hours}

i) (b) 176 hours

refer basic solution above
ii) (a) ₹ 1,056 and ₹ 2,816
bonus : 44 hrs × 10% = 4.4 hrs/week × 4 weeks × 3 operators × 20/hr
= 1056
power : 2816 – refer working above
iii) (b) - refer solution above

iv) (a) ₹ 99.51

refer Solution above

10. 1. (c) ₹ 34.80 per hour

Maintenance Machining Assembly
Dept. Dept. Dept.
O/H as per primary distribution ₹ 40,000 ₹ 1,50,000 ₹ 75,000
Reapportion Maint. Dept (3:2) (₹ 40,000) ₹ 24,000 ₹ 16,000

33 CA/CS Nimeet Piti | | |

 O/H as per Secondary distribution - ₹ 1,74,000 ₹ 91,000
 hours 5000 10,000
 Machine hours   Labour hours 
   
rate/hr  34.8 / hr   9.1 / hr 

2. (a) ₹ 69,060
Total overhead Cost of Product A.
Product A: 1200/m/c hrs × 34.8/hr +
3000/Lab. Hrs × 9.1 hr ₹ 69,060

11. 1. (c) ₹ 10,000 Under-absorbed ₹

Overheads incurred 1,50,000
Overheads absorbed 1,40,000
Overheads under - absorbed 70,000

2. (a) ₹ 40,000 ₹
Profit as per cost accounts 50,000
Less: Under – absorbed overheads (10,000)
Profit as per financial books 40,000

3. (a) The company may need to increase its overhead absorption rate.

34 CA/CS Nimeet Piti | | |

 5 Activity Based Cost sheets

1. From the following information, calculate the Total cost of Product A and B using the ABC analysis:
Product A Product B
Units 5,000 5,000
Number of purchase orders placed 100 220
Number of deliveries received 70 200
Ordering Cost ₹ 4,00,000
Delivery Cost ₹ 1,35,000
(a) A = ₹ 47,500; B = ₹ 1,27,500 (b) A = ₹ 2,67,500; B = ₹ 2,67,500
(c) A = ₹ 1,60,00; B = ₹ 3,75,000 (d) A = ₹ 1,47,500; B = ₹ 1,47,500

2. One of Pintu Company’s cost pools is parts administration. The budgeted overhead cost for that
cost pool was ₹ 4,00,000 and the expected activity was 4,000 part types. The actual overhead cost
for the cost pool was ₹ 4,20,000 at an actual activity of 5,000 part types. The activity rate for
that cost pool was:
(a) ₹ 80 per part type (b) ₹ 100 per part type
(c) ₹ 105 per part type (d) ₹ 84 per part type

3. SunBright Appliances Ltd., founded in 2005, is a growing Indian manufacturer of three types of
home appliances: Air Conditioners (ACs), Washing Machines (WMs), and Refrigerators (RFs). The
company has built a reputation for quality and durability in the mid-range market segment and has
seen stable demand across urban and semi-urban markets. In recent years, it has invested in
modernizing its production facilities with semi-automated machinery and upgraded
ERP systems to support cost control and performance monitoring.

SunBright is currently facing a multi-dimensional challenge:

• Increasing input costs (particularly raw materials and electricity)
• Intense competition from both multinational brands and low-cost domestic players
• Demand fluctuation due to seasonal sales cycles and changing consumer preferences
• Pressure on profit margins, especially in the washing machine segment
• Sustainability targets and pressure to reduce carbon footprint by optimizing energy usage and
waste
To stay competitive, the board has asked the finance and operations teams to assess:
• Cost structures and process efficiencies
• Profitability by product line
• Feasibility of accepting foreign bulk orders
• Operational variances impacting budgets and performance

35 CA/CS Nimeet Piti | | |

Following data is available for the quarter:
Particulars ACs WMs RF
Units Produced 5,000 6,000 4,000
Units Sold 5,000 6,000 4,000
Direct Material Cost Per Unit ₹ 7,500 ₹ 5,000 ₹ 6,000
Direct Labour Hours Per Unit 6 hrs 4 hrs 5 hrs
Direct Labour Rate ₹ 250/hr ₹ 250/hr ₹ 250/hr
Selling Price Per Unit ₹ 18,000 ₹ 14,000 ₹ 16,000
Standard Labour Hours 5.5 hrs 3.5 hrs 5.5 hrs

Overhead Costs for the Quarter:

Activity Tota Cost Driver Driver Quantity
Overhead (Total)
(₹)
Machine Setups ₹ 9,00,000 No. of setups 180 setups
Quality Inspections ₹ 6,00,000 No. of inspections 300 inspections
Material Handling ₹ 7,50,000 No. of material moves 500 moves
Utilities & Maintenance ₹ 15,00,000 Machine hours 30,000 machine hours

Activity Driver Consumption:

Product Setups Inspections Material Moves Machine Hours
ACs 60 90 200 12,000
WMs 70 100 150 10,000
RFs 50 110 150 8,000
SunBright also received a special order from a foreign buyer for 500 WMs at ` 12,000 each.
This order requires an Additional packaging cost of ` 150/unit. However, no marketing costs will
be incurred. Also, it can only be accepted fully.
Budgeted overhead of the company is ` 37,00,000.
On the basis of above information and requirements of the board, you are required to answer
the following questions:
What is the total product cost per unit using Activity-Based Costing for ACs, WMs, RFs
respectively?
(a) ACs – ` 9,276.00, WMs – ` 6,212.50, RFs – ` 7,523.75
(b) ACs – ` 9,560.50, WMs – ` 6,500.00, RFs – ` 7,800.00
(c) ACs – ` 9,000.00, WMs – ` 6,065.55, RFs – ` 7,223.75
(d) ACs – ` 8,800.00, WMs – ` 6,100.00, RFs – ` 7,300.00

36 CA/CS Nimeet Piti | | |

4. With the rise in carbon dioxide, a greenhouse gas, release in the environment, when fossil fuels are
burned, Earth's natural greenhouse effect is becoming too weak causing global warming. To
contribute towards global environment for the betterment, various cars and scooters
manufacturing companies are shifting their production towards electric vehicles (EVs)
manufacturing. Companies are heavily investing in research, development and production of EVs.
Olay Ltd. is also one the companies belonging to scooter manufacturing industry. Watching its
rivalries shifting their production to EVs, the management of Olay Ltd. decided to take the
advantage of this open opportunity. It had been only 4 years since the company started its
production of EVs, but last year, the management of the company also decided to expand its product
line to 3 variants of the scooter, viz., Olay EV Max, Olay EV Ultra and Olay EV Pro.

The following information is provided for the current year from the books of Olay Ltd.:
Olay EV Max Olay EV Ultra Olay EV Pro
Average revenue per unit (₹) 84,975 1,15,500 2,17,800
Average cost of goods sold per unit (₹) 82,500 1,10,000 1,98,000
Last year, when the company initially expanded its product line, the sales were not much noticeable
comparative to its earlier category of scooters. The company could only sold 528, 330 and 110 units
of Olay EV Max, Olay EV Ultra and Olay EV Pro respectively against the order received of 616, 396
and 165 units respectively. However, with the increasing awareness about the EVs, more people
started buying EVs and, during the current year, the company’s order and sales jumped to five times
the last year.

For earlier years, Olay Ltd. used gross margin percentage method to evaluate the relative
profitability for all of its EVs.
However, from current year, company plans to use activity-based costing for analysing the
profitability.
The Activity analysis of Olay Ltd. is as under:
Activity Area Cost-allocation base
Customer purchase order processing Purchase orders by customers
Line-item ordering Line-items per purchase order
Store delivery Unit sold
Cartons dispatched to stores Cartons dispatched to a store per Unit
Shelf-stocking at customer store Hours of shelf-stocking
All the support costs for the current year amounts to ` 66,23,760. These support costs are
assigned to all the activity areas.

37 CA/CS Nimeet Piti | | |

The cost in each area and the quantity of the cost allocation basis used in that area are as follows:
Activity Area Total costs (₹) Total Units of Cost- allocation base
Line-item ordering 14,04,480 66,110 line items
Cartons dispatched to store 16,72,000 3,39,240 cartons
Shelf-stocking at customer store 2,25,280 2,904 hours
The Customer purchase order processing costs ` 17,60,000 along with the store delivery cost of `
15,62,000.
Some of the other information is also provided below:
Olay EV Olay EV Olay EV
Max Ultra Pro
Average number of line items per order 10 12 14
Average number of cartons shipped per store unit 16 80 300
Average number of hours of shelf- stocking per store delivery 0.1 0.6 3
The company wants you to FIGURE OUT the following to ascertain which of the product line is more
profitable:

(i) For the current year, how much is the order received and the units sold for Olay EV Max, Olay
EV Ultra and Olay EV Pro respectively?
(a) Order received- 616, 396 and 165 units; sold- 528, 330 and 110 units of Olay EV Max, Olay EV
Ultra and Olay EV Pro respectively.
(b) Order received- 3,696, 2,376 and 990 units; sold- 3,168, 1,980 and 660 units of Olay EV Max,
Olay EV Ultra and Olay EV Pro respectively.
(c) Order received- 528, 330 and 110 units; sold- 616, 396 and 165 units of Olay EV Max, Olay EV
Ultra and Olay EV Pro respectively.
(d) Order received- 3,080, 1,980 and 825 units; sold- 2,640, 1,650 and 550 units of Olay EV Max,
Olay EV Ultra and Olay EV Pro respectively.

(ii) The total gross-margin percentage and the operating income percentage, for the current year
would be:
(a) Gross-margin - 3.72% and Operating income - 4.96%
(b) Gross-margin - 4.96% and Operating income - 3.72%
(c) Gross-margin - 4.96% and Operating income - 4.96%
(d) Gross-margin - 3.72% and Operating income - 3.72%

(iii) The cost driver rate relating to all the five activity areas would be:
(a) Customer purchase order processing- ` 363.64 per order, Line item ordering- ` 21.24 per line
item order, Store delivery- ` 265.42 per unit sold, Cartons dispatched- ` 4.93 per dispatch and
Shelf-stocking at customer store- ` 77.58 per hour.

38 CA/CS Nimeet Piti | | |

 (b) Customer purchase order processing- ` 299.07 per order, Line item ordering- ` 21.24 per line
item order, Store delivery- ` 322.73 per unit sold, Cartons dispatched- ` 4.93 per dispatch and
Shelf-stocking at customer store- ` 77.58 per hour.
(c) Customer purchase order processing- ` 299.07 per order, Line item ordering- ` 77.58 per line
item order, Store delivery- ` 322.73 per unit sold, Cartons dispatched- ` 4.93 per dispatch and
Shelf-stocking at customer store- ` 21.24 per hour.
(d) Customer purchase order processing- ` 322.73 per order, Line item ordering- ` 21.24 per line
item order, Store delivery- ` 299.07 per unit sold, Cartons dispatched- ` 4.93 per dispatch and
Shelf-stocking at customer store- ` 77.58 per hour.

(iv) The operating cost of the individual product line, as per the method proposed for the current
year w.r.t. profitability analysis, would be:
(a) Olay EV Max- ` 16,11,013, Olay EV Ultra- ` 23,56,890 and Olay EV Pro- ` 26,56,059
(b) Olay EV Max- ` 23,56,890, Olay EV Ultra- ` 26,56,059 and Olay EV Pro- ` 16,11,013
(c) Olay EV Max- ` 26,56,059, Olay EV Ultra- ` 16,11,013 and Olay EV Pro- ` 23,56,890
(d) Olay EV Max- ` 26,56,059, Olay EV Ultra- ` 23,56,890 and Olay EV Pro- ` 16,11,013

(v) Operating income as a percentage of revenues of each product line, namely Olay EV Max, Olay
EV Ultra and Olay EV Pro, when all the support costs are allocated using an activity-based costing
system would be:
(a) Olay EV Max- 1.73%, Olay EV Ultra- 3.53% and Olay EV Pro7.75%
(b) Olay EV Max- 1.18%, Olay EV Ultra- 1.24% and Olay EV Pro1.34%
(c) Olay EV Max- 2.91%, Olay EV Ultra- 4.76% and Olay EV Pro9.09%
(d) Olay EV Max- 1.78%, Olay EV Ultra- 3.70% and Olay EV Pro8.52%

5. The sales department of A Limited is analysing the customer profitability for its Product Z. It
has decided to analyse the profitability of its five new customers using activity-based costing
method. It buys Product Z at ` 5,400 per unit and sells to retail customers at a listed price of `
6,480 per unit.
The data pertaining to five customers are:
Customers
A B C D E
Units sold 4,500 6,000 9,500 7,500 12,750
Listed Selling Price ₹ 6,480 ₹ 6,480 ₹ 6,480 ₹ 6,480 ₹ 6,480
Actual Selling Price ₹ 6,480 ₹ 6,372 ₹ 5,940 ₹ 6,264 ₹ 5,832
Number of Purchase orders 15 25 30 25 30
Number of Customer visits 2 3 6 2 3
Number of deliveries 10 30 60 40 20

39 CA/CS Nimeet Piti | | |

Kilometers travelled per delivery 20 6 5 10 30
Number of expedited deliveries 0 0 0 0 1

After a detailed analysis and computation, the following activities has been identified and
respective cost has been calculated:
Activity Cost Driver Rate
Order taking ` 4,500 per purchase order
Customer visits ` 3,600 per customer visit
Deliveries ` 7.50 per delivery Km travelled
Product handling ` 22.50 per case sold
Expedited deliveries ` 13,500 per expedited delivery
You have been assigned the following task of computing different cost information for managerial
decision making:
1. How much cost on customer visit is incurred on customer E?
(a) ₹ 7,200 (b) ₹ 10,800
(c) ₹ 21,600 (d) ₹ 3,600

2. What is the cost of goods sold for customer D?

(a) ₹ 2,43,00,000 (b) ₹ 3,24,00,000
(c) ₹ 5,13,00,000 (d) ₹ 4,05,00,000

3. How much is the cost of expediting delivery for customer A?

(a) ` 13,500 (b) ₹ 27,000
(c) ₹ 40,500 (d) `0

4. Compute the customer-level operating income of each of customers A.

(a) ` 55,72,350 (b) ₹ 46,82,550
(c) ₹ 47,57,400 (d) ₹ 50,57,325

5. Compute the customer-level operating income of each of five retail customers D and E.
(a) ₹ 46,82,550 & 50,65,720 (b) ` 55,72,350 & 46,85,500
(c) ₹ 47,57,400 & 55,72,350 (d) ` 61,88,550 & 50,57,325

40 CA/CS Nimeet Piti | | |

 ANSWERS
1. (c) A = ` 1,60,000; B = ` 3,75,000
Activity Activity Cost Cost Driver Cost Driver Volume Cost Driver
Pool rate
Ordering cost 4,00,000 No. of orders 320 (100 + 220) 1250/order
Delivery cost 1,35,000 No. of deliveries 270 (70 + 200) 500/delivery

A B
Ordering cost 1,25,000 2,75,000
(1250 × 100) (11,250 × 220)
Delivery cost 35,000 1,00,000
(500 × 70) (500 × 200)
Total cost 1,60,000 3,75,000

2. (b) ` 100 per part type

Activity cost Pool 400000

Cost driver rate = = = 100/part type
Cost driverVolume 4000

3. (a) ACs – ` 9,276.00, WMs – ` 6,212.50, RFs – ` 7,523.75

Statement Showing “Cost per unit - Activity Based Costing”
Product ACs (₹) WMs (₹) RFs (₹)
Material 7,500 5,000 6,000
Labour Hours 6 4 5
Labour Rate/hr 250 250 250
Labour 1,500 1,000 1,250
Overhead (W.N.) 276.00 212.50 273.75
Total Cost 9,276.00 6,212.50 7,523.75

Working Notes
Cost for each activity cost driver:
Activity Total Cost (₹) No. of Activity Activity Rate
Driver
Machine Setups ₹ 9,00,000 180 setups ₹ 5,000/setup
Quality Inspections ₹ 6,00,000 300 inspections ₹ 2,000/inspection
Material Handling ₹ 7,50,000 500 moves ₹ 1,500/move
Utilities & Maint. ₹ 15,00,000 30,000 hrs ₹ 50/machine hour

41 CA/CS Nimeet Piti | | |

 Overhead Cost per Unit
Product ACs (₹) WMs (₹) RFs (₹)
Setups 60 x 5,000 70 x 5,000 50 x 5,000
= 3,00,000 = 3,50,000 = 2,50,000
Inspections 90 x 2,000 100 x 2,000 110 x 2,000
= 1,80,000 2,00,000 = 2,20,000
Material Handling 200 x 1,500 150 x 1,500 150 x 1,500
= 3,00,000 = 2,25,000 = 2,25,000
Utilities & Maintenance 12,000 x 50 10,000 x 50 8,000 x 50
= 6,00,000 = 5,00,000 = 400,000
Total Overhead 13,80,000 12,75,000 10,95,000
Units Produced 5,000 6,000 4,000
Overhead per Unit 276.00 212.50 273.75

4. (i) (d)
Particulars Olay EV Olay EV Olay EV Pro Total
Max (units) Ultra (units) (units) (units)
Previous year order 616 396 165 1,177
received
Current Year order (5 3,080 1,980 825 5,885
times the last year)
Previous year sales 528 330 110 968
Current Year sales (5 2,640 1,650 550 4,840
times the last year)

(ii) (b)
Statement of gross margin percentage and operating income percentage
Particulars Olay EV Max Olay EV Ultra Olay EV Pro Total
Revenues (A) (₹) 22,43,34,000 19,05,75,000 11,97,90,000 53,46,99,000
(2,640×₹84,975) (1,650×₹1,15,500) (550×₹2,17,800)
Less: Cost of goods 21,78,00,000 18,15,00,000 10,89,00,000 50,82,00,000
sold (B) (₹)
(2,640×₹82,500) (1,650×₹1,10,000) (550×₹1,98,000)
Gross Margin (A - B) 65,34,000 90,75,000 1,08,90,000 2,64,99,000
(₹)
Less: Operating 66,23,760
costs (₹)
Operating income (₹) 1,98,75,240
Gross Margin % 4.96%
Operating income % 3.72%

42 CA/CS Nimeet Piti | | |

(iii) (b)
Computation of cost driver rate relating to all the activity areas
Particulars (₹)
Customer purchase order processing (₹17,60,000/5,885 orders) 299.07 per order
Line item ordering (₹14,04,480/66,110 line items) 21.24 per line item order
Store delivery (₹15,62,000/4,840 unit sold) 322.73 per unit sold
Cartons dispatched (₹16,72,000/3,39,240 dispatches) 4.93 per dispatch
Shelf-stocking at customer store (₹2,25,280/2,904 hours) 77.58 per hour

(iv) (d)
Computation of operating cost
Olay EV Max (₹) Olay EV Ultra (₹) Olay EV Pro (₹) Total (₹)
Customer 9,21,136 5,92,159 2,46,733 17,60,027
purchase order
processing
(₹299.07×3,080 orde (₹299.07×1,980 o (₹299.07×825 orders)
rs) rders)
Line item 6,54,192 5,04,662 2,45,322 14,04,176
ordering
(₹21.24×10×3,080 ord (₹21.24×12×1,980 (₹21.24×14×825 orders)
ers) orders)
Store delivery 8,52,007 5,32,505 1,77,502 15,62,013
(₹322.73×2,640 unit (₹322.73×1,650 u (₹322.73×550 unit sold)
sold) nit sold)
Cartons 2,08,243 6,50,760 8,13,450 16,72,453
dispatched
(₹4.93×16 cartons ×2, (₹4.93×80 carton (₹4.93×300 cartons ×550
640 units) s ×1,650 units) units)
Shelf stocking 20,481 76,804 1,28,007 2,25,292
(₹77.58×2,640 delive (₹77.58×1,650 del (₹77.58×550 deliveries ×
ries ×0.1 Av. hrs.) iveries ×0.6 Av. hr 3 Av. hrs)
s.)
Operating cost 26,56,059 23,56,890 16,11,013 66,23,962*

*Difference due to rounding off

(v) (a)
Operating Income Statement (using the Activity based Costing system)
Olay EV Max Olay EV Ultra Olay EV Pro
Revenues (₹) (A) 22,43,34,000 19,05,75,000 11,97,90,000
(2,640×₹84,975) (1,650×₹1,15,500) (550×₹2,17,800)

43 CA/CS Nimeet Piti | | |

 Less: Cost of goods sold (₹) (B) 21,78,00,000 18,15,00,000 10,89,00,000
(2,640×₹82,500) (1,650×₹1,10,000) (550×₹1,98,000)
Gross Margin (₹) (C) (A - B) 65,34,000 90,75,000 1,08,90,000
Operating cost (₹) (D) (Refer to (iv) part 26,56,059 23,56,890 16,11,013
of the answer)
Operating income (₹) (E) (C - D) 38,77,941 67,18,110 92,78,987
Operating income (in Revenue%)×100 1.73% 3.53% 7.75%

5.
Activity Activity Cost Driver Cost Driver Cost Driver
Cost PooL Volume rate
Machine Setup 1,00,000 Setups 20 5000/setup
Quality Inspections 1,50,000 Inspections 30 5000/inspection
Material handling 50,000 Material 5000 10/movement
movements

1.(c) ₹ 45,000
Set up (2 × 5000) ₹ 10,000
Quality Inspections (5 × 5000) ₹ 25000
Material movements (1000 × 10) ₹ 10,000
Total overhead costs ₹ 45,000

2.(b) ₹237.50
Direct costs (100 pu × 500 units) ₹ 50,000
Overheads (as above) ₹ 45,000
Total Costs ₹ 95,000
+ Profit @ 25% total cost ₹ 23,750
Total Sales ₹ 118,750
 Units 500
Selling Price per unit ₹ 237.5

3.(c) ₹ 50,000
Set up (2 × 5000) ₹ 10,000
Quality Inspections (5 × 5000) ₹ 25000
Material movements (1500 × 10) ₹ 15,000
Total overhead costs ₹ 50,000

44 CA/CS Nimeet Piti | | |

4.(b) ₹20
Increase in setup costs = 1,00,000 × 10% ₹ 10,000
 Units 500
Increase in per unit overhead costs ₹ 20/-

45 CA/CS Nimeet Piti | | |

 6 Cost sheets

1. What would be Prime cost from below information?

Direct materials Purchased : ₹ 75,000
Direct labour : ₹ 45,000
Direct expenses : ₹ 15,000
Manufacturing overheads : ₹ 22,500
Direct materials consumed : ₹ 67,500
(a) ₹ 1,35,000 (b) ₹ 1,27,500
(c) ₹ 1,57,500 (c) ₹ 1,50,000

2. Following information is available for the month of March relating to manufacturing of a product:
Particulars Amount (₹)
Cost of Sales 37,51,540
Stock of Raw material as on 01st March 6,50,000
Direct Wages 11,44,000
Hire charges paid for Plant (indirect expenses) 3,24,740
Salary to office staff 1,78,750
Maintenance of office building 13,000
Depreciation on Delivery van 39,000
Warehousing charges 61,750
Stock of Raw material as on 31st March 1,95,000
Realisable value on sale of scrap 32,500
Factory overheads are 20% of the Prime cost.
FIND OUT the value of Raw Material purchased with the help of Statement of Cost.
(a) ₹ 10,40,000
(b) ₹ 14,95,000
(c) ₹ 26,39,000
(d) ₹ 34,91,540

3. M Ltd. is producing a single product and may expand into product diversification in next one to
two years. M Ltd. is amongst a labour-intensive company where. majority of processes are done
manually. Employee cost is a major cost element in the total cost of the company. The company
conventionally uses performance parameters Earnings per manshift (EMS) to measure cost paid
to an employee for a shift of 8 hours, and Output per manshift (OMS) to measure an employee's
output in a shift of 8 hours.
The Chief Manager (Finance) of the company has emailed you few information. related to the last
month. The email contains the following data related to the last month:
During the last month, the company has produced 2,34,000 tonnes of output.

46 CA/CS Nimeet Piti | | |

Expenditures for the last months are:
(i) Raw materials consumed ₹ 50,00,000
(ii) Power consumed 13,000 Kwh @B per Kwh to run the machines for production.
(iii) Diesel consumed 2,000 litres 93 per litre to run power generator used as alternative or
backup for power cuts.
(iv) Wages & salary paid - 6,40,00,000
(v) Gratuity & leave encashment paid - 64,20,000
(vi) Hiring charges paid for HEMM - 30,00,000. HEMM are directly used in production.
(vii) Hiring charges paid for cars used for official purpose - 66,000
(viii) Reimbursement of diesel cost for the cars - 22,000
(ix) The hiring of cars attracts GST under RCM 5% without credit.
(x) Maintenance cost paid for weighing bridge (used for weighing of final goods at the time of
dispatch) - 12,000
(xi) AMC cost of CCTV installed at weighing bridge (used for weighing of final goods at the time
of dispatch) and factory premises is 8,000 and 18,000 per month respectively.
(xii) TA/ DA and hotel bill paid for sales manager - 36,000
(xiii) The company has 1,800 employees works for 26 days in a month.

You are asked to calculate the following:

1. What is the amount of prime cost incurred during the last month:
(a) ₹ 7,54,20,000 (b) ₹ 7,57,10,000
(c) ₹ 7,56,06,000 (d) ₹ 7,87,10,000

2. What is the total and per shift cost of production for last month:
(a) ₹ 7,87,10,000 and 336.37 respectively
(b) ₹ 7,87,10,000 and 1,681.84 respectively
(c) ₹ 7,87,28,000 and 1,682.22 respectively
(d) ₹ 7,87,28,000 and 336.44 respectively

3. What is the value of administrative cost incurred during the last month:
(a) ₹ 92,400 (b) ₹ 88,000
(c) ₹ 1,48,400 (d) ₹ 1,44,000

4. What is the value of selling and distribution cost and total cost of sales:
(a) ₹ 36,000 & ₹ 7,88,76,400 respectively
(b) ₹ 56,000 & ₹ 7,88,76,400 respectively
(c) ₹ 36,000 & ₹ 7.88,72,000 respectively
(d) ₹ 56,000 & ₹ 7,88,72,000 respectively

47 CA/CS Nimeet Piti | | |

 5. What is the value EMS and OMS for the last month:
(a) ₹ 1,504.70 & 5 tonnes respectively
(b) ₹ 1,367.52 & 5 tonnes respectively.
(c) ₹ 1,504.70 & 4.37 tonnes respectively
(d) ₹ 1,367.52 & 4.37 tonnes respectively

4. P Ltd. has gathered cost information from ledgers and other sources for the year ended 31st
December 2023. The information are tabulated below:
SI. Amount (₹) Amount
No. (₹)
(i) Raw materials purchased 5,00,00,000
(ii) Freight inward 9,20,600
(iii) Wages paid to factory workers 25,20,000
(iv) Royalty paid for production 1,80,000
(v) Amount paid for power & fuel 3,50,000
(vi) Job charges paid to job workers 3,10,000
(vii) Stores and spares consumed 1,10,000
(viii) Depreciation on office building 50,000
(ix) Repairs & Maintenance paid for:
- Plant & Machinery 40,000
- Sales office building 20,000 60,000
(x) Insurance premium paid for:
- Plant & Machinery 28,200
- Factory building 18,800 47,000
(xi) Expenses paid for quality control check activities 18,000
(xii) Research & development cost paid for improvement in 20,000
production process
(xiii) Expenses paid for pollution control and engineering & 36,000
maintenance
(xiv) Salary paid to Sales & Marketing mangers 5,60,000
(xv) Salary paid to General Manager 6,40,000
(xvi) Packing cost paid for:
Primary packing necessary to maintain quality 46,000
For re-distribution of finished goods 80,000 1,26,000
(xvii) Fee paid to independent directors 1,20,000
(xviii) Performance bonus paid to sales staffs 1,20,000
(xix) Value of stock as on 1st January, 2023:
- Raw materials 10,00,000
- Work-in-process 8,60,000

48 CA/CS Nimeet Piti | | |

 - Finished goods 12,00,000 30,60,000
(xx) Value of stock as on 31st December, 2023:
Raw materials 8,40,000
Work-in-process 6,60,000
Finished goods 10,50,000 25,50,000
Amount realized by selling of scrap and waste generated during manufacturing process - ₹
48,000/-
The board meeting is scheduled to be held in next week and you being an associate to the chief
cost controller of the company, has been asked to be prepared with the following figures:
1. How much is the prime cost of the company?
(a) ₹ 5,10,80,600 (b) ₹ 5,44,40,600
(c) ₹ 5,36,00,600 (d) ₹ 5,19,20,600

2. How much is the cost of production?

(a) ₹ 5,49,09,600 (b) ₹ 5,50,59,600
(c) ₹ 5,48,73,600 (d) ₹ 5,50,59,000

3. What is the value of cost of goods sold?

(a) ₹ 5,49,09,600 (b) ₹ 5,50,59,600
(c) ₹ 5,48,73,600 (d) ₹ 5,50,59,000

4. How much is the factory cost?

(a) ₹ 5,49,09,600 (b) ₹ 5,50,59,600
(c) ₹ 5,48,73,600 (d) ₹ 5,50,59,000

5. What is the value of cost of sales?

(a) ₹ 5,66,49,600 (b) ₹ 5,50,59,600
(c) ₹ 5,48,73,600 (d) ₹ 5,50,59,000

5. The analysis of cost sheet of A Ltd. for the last financial year has revealed the following
information for it's product R:
Elements of Cost Variable Cost portion Fixed Cost
Direct Material 30% of cost of goods sold --
Direct Labour 15% of cost of goods sold --
Factory Overhead 10% of cost of goods sold ₹ 2,30,000
General & Administration Overhead 2% of cost of goods sold ₹ 71,000
Selling & Distribution Overhead 4% of cost of sales ₹ 68,000
Last year 5,000 units were sold at ₹ 185 per unit.
You being an associate to cost controller of the A Ltd., is expected to answer the followings:

49 CA/CS Nimeet Piti | | |

 1. What is the cost of goods sold for the last year?
(a) ₹ 7,20,000 (b) ₹ 7,00,000
(c) ₹ 7,10,000 (d) ₹ 7,30,000

2. What is the cost of sales for the last year?

(a) ₹ 8,00,000 (b) ₹ 8,20,000
(c) ₹ 8,10,000 (d) ₹ 7,90,000

3. The total fixed cost is:

(a) ₹ 3,79,000 (b) ₹ 3,89,000
(c) ₹ 3,59,000 (d) ₹ 3,69,000

4. Calculate Break-even Sales (in rupees)

(a) ₹ 6,90,882 (b) ₹ 7,90,000
(c) ₹ 3,89,000 (d) ₹ 5,48,692

5. What is the Margin of safety (in %)?

(a) 26.58% (b) 25.31%
(c) 53.41% (d) 34.25%

6. The following information pertains to ABC Limited for the period 1st April, 2024 to 31 st March,
2025
Sl. Particulars Amount
No. (₹)
1 Royalty paid for production 7,76,400
2 Amount paid for power & fuel 2,15,200
3 Packing cost paid for re-distribution of Finished Goods 70,500
4 Repairs & Maintenance paid for :
Plant & Machinery 65,000
Sales office building 80,000
Total 1,45,000
5 Insurance premium paid for Plant & Machinery 1,17,520
6 Research & Development cost paid for improvement in production process 17,800
7 Depreciation on office building 75,500
8 Salary paid to General Manager 15,50,000
9 Salary & bonus paid to Sales & Marketing staff 11,40,500
10 Receipt from sale of scrap and waste generated during production 20,000
11 Value of stock as on 1st April, 2024:
Raw materials 5,00,000

50 CA/CS Nimeet Piti | | |

 Work-in-process 8,40,000
Finished goods
12 Value of stock as on 31st March, 2025:
Raw materials 1,10,000
Work-in-process 6,50,000
Finished goods ?

Other information is as follows:

(i) Raw materials purchased were 15,000 kgs @ ₹ 300 per kg.
(ii) Freight inwards paid at 4% of the cost of raw materials purchased.
(iii) Wages paid to factory workers was 30% of raw material consumed.
(iv) Closing stock of finished goods was ₹ 9,00,000 more than the opening stock. The average
stock of finished goods was ₹ 11,55,000.
(v) Sales during the period 1st April, 2024 to 31st March, 2025 was ₹ 1,10,00,000.

1. What is the Direct employee (labour) cost?

(A) ₹ 15,21,000
(B) ₹ 14,67,000
(C) ₹ 14,62,500
(D) ₹ 15,29,500

2. What is the Prime cost?

(A) ₹ 78,88,000
(B) ₹ 65,91,600
(C) ₹ 75,82,600
(D) ₹ 72,92,000

3. What is the Factory cost?

(A) ₹ 78,85,520
(B) ₹ 79,55,120
(C) ₹ 75,75,650
(D) ₹ 76,45,840

4. What is the cost of goods sold?

(A) ₹ 76,55,520
(B) ₹ 78,35,850
(C) ₹ 69,62,920
(D) ₹ 70,82,500

51 CA/CS Nimeet Piti | | |

 5. What is the amount of Profit?
(A) ₹ 12,25,350
(B) ₹ 11,33,000
(C) ₹ 10,95,500
(D) ₹ 11,20,580

7. SpeedX Automotive Pvt. Ltd. is a well-known manufacturer of automotive components focusing on

producing high-quality fuel-efficient engine parts and transmission systems for both commercial
and passenger vehicles. With a strong presence in the Indian market and an expanding footprint in
Southeast Asia, SpeedX Automotive has established itself as a reliable supplier in the automotive
industry. Headquartered in Pune, Maharashtra, the company is dedicated to meticulous cost
management and strategic financial oversight, ensuring operational efficiency and profitability.
SpeedX Automotive Pvt. Ltd. allocates significant investments to direct costs, the lifeblood of their
manufacturing process. The company spends 130,000 on purchasing direct materials, ensuring that
the quality of raw materials meets their high standards. Direct labor, a critical component of their
production, accounts for 90,000, reflecting their commitment to a skilled workforce. Additionally,
direct expenses are managed at 30,000, covering various essential costs that directly impact their
manufacturing operations.

Overhead costs are another crucial aspect of SpeedX Automotive's financial strategy. Factory
overheads amount to 60,000, covering all indirect manufacturing expenses. Administration
overheads are managed efficiently at ₹ 20,000. Selling and distribution overheads are maintained
at 10,000, ensuring that products reach the market effectively. Quality control, vital for
maintaining the company's reputation, is allocated ₹ 5,000, while ₹ 10,000 is dedicated to research
and development, highlighting their focus on innovation. Inventory management is key to SpeedX
Automotive's financial health. The opening stock of raw materials stands at ₹ 50,000. The work-in-
process inventory starts at ₹ 15,000 and is increased to ₹ 35,000, indicating a smooth production
flow.

For finished goods, the company maintains an opening stock worth ₹ 30,000, adjusted to a closing
stock value of ₹ 25,000, showcasing their agile response to market demands. Throughout the period,
SpeedX Automotive's manufacturing expertise is evident as they successfully produce 4,000 units.
Of these, 3,800 units are sold at a price of ₹ 100 per unit. Additional Information: During the
period, the price of raw materials fluctuated. At the beginning of the period, the price was ₹ 10
per unit. Midway through the period, the price increased to ₹ 12 per unit. The company could only
purchase 10,000 units at the lower price of ₹ 10 per unit. Raw material consumed was 14,000 units.
Company follows FIFO method for inventory valuation.

52 CA/CS Nimeet Piti | | |

 1. What is the value of closing stock of raw materials?
(a) ₹ 35,000
(b) ₹ 42,000
(c) ₹ 40,000
(d) ₹ 40,845

2. Calculate the cost of production.

(a) ₹ 325,000
(b) ₹ 315,000
(c) ₹ 350,000
(d) ₹ 370,000

3. What is the cost of goods sold?

(a) ₹ 320,000
(b) ₹ 335,000
(c) ₹ 325,000
(d) ₹ 345,000

4. Determine the cost of sales.

(a) ₹ 350,000
(b) ₹ 360,000
(c) ₹ 370,000
(d) ₹ 380,000

5. What is the cost per unit of goods sold if 3,800 units were sold?
(a) ₹ 91.11
(b) ₹ 94.74
(c) ₹ 84.21
(d) ₹ 97.45

8. ZEN Manufacturing Pvt. Ltd., headquartered in Pune, Maharashtra, is a mid-sized but rapidly
growing enterprise specializing in the production of precision-engineered automobile components
tailored specifically for the electric vehicle (EV) industry. With India’s EV segment witnessing
exponential growth driven by sustainability goals and government incentives, ZEN has emerged as
a trusted Tier-2 supplier to some of the country’s leading electric vehicle manufacturers.
The company operates with a mission to deliver high-quality, durable, and technologically advanced
components that meet stringent safety and efficiency standards. Its operations encompass R&D,
material procurement, in-house manufacturing, and logistics support — all backed by a strong team
of engineers, production planners, and administrative personnel.

53 CA/CS Nimeet Piti | | |

With a focus on continuous process improvement and cost competitiveness, ZEN undertakes annual
internal cost audits to evaluate operational efficiency, identify cost leakages, and support strategic
decision-making. As part of this year's financial review for the period ending 31st March, 2025,
the company has appointed you, a newly hired Cost Consultant, to analyse its cost performance,
prepare a comprehensive cost sheet, and evaluate the profitability of its operations based on the
financial data provided.
Particulars Amount (₹)
Purchase of raw materials 96,50,000
Consumable materials used 5,25,000
Direct labour wages 72,80,000
Freight and carriage inward 2,15,000
Wages to floor supervisors and store assistants 9,60,000
Indirect wages to factory staff 1,75,000
R&D expenses related to enhancing production methods 11,20,000
Salaries to accounts and admin staff 8,50,000
Penalty paid for the late payment of interest 80,000
Employer’s contribution to EPF & ESI 8,00,000
Electricity and fuel used in production 30,50,000
Production scheduling & planning office expenses 13,50,000
Delivery personnel salaries 15,20,000
Income tax for AY 2024–25 3,10,000
Statutory audit fees 2,20,000
Cost audit fees 95,000
Honorarium to independent board members 10,50,000
Contribution to disaster relief fund 1,40,000
Total Value of Sales 3,12,80,000

Inventory details:
Particulars As on 01-04-2024 (₹) As on 31-03-2025 (₹)
Raw Materials 7,10,000 5,40,000
Work-in-Progress 8,50,000 7,25,000
Finished Goods 16,20,000 11,80,000
1. What is the Prime Cost of ZEN Manufacturing Pvt. Ltd. for the year ended 31st March
2025?
(a) ₹ 2,16,90,000
(b) ₹ 2,18,90,000
(c) ₹ 2,13,10,000
(d) ₹ 2,09,60,000

54 CA/CS Nimeet Piti | | |

2. What is the Factory Cost of ZEN Manufacturing Pvt. Ltd.?
(a) ₹ 2,29,50,000
(b) ₹ 2,28,25,000
(c) ₹ 2,54,20,000
(d) ₹ 2,16,90,000

3. What is the Cost of Production of ZEN Manufacturing Pvt. Ltd?

(a) ₹ 2,28,25,000
(b) ₹ 2,29,50,000
(c) ₹ 2,54,20,000
(d) ₹ 2,13,10,000

4. What is the Cost of Goods Sold (COGS) for ZEN Manufacturing Pvt. Ltd. in FY 2024-
25?
(a) ₹ 2,54,20,000
(b) ₹ 2,58,60,000
(c) ₹ 2,95,95,000
(d) ₹ 3,12,80,000

5. What is the Net Profit for ZEN Manufacturing Pvt. Ltd.?

(a) ₹ 22,15,000
(b) ₹ 16,85,000
(c) ₹ 19,20,000
(d) ₹ 2,95,95,000

55 CA/CS Nimeet Piti | | |

 ANSWERS
1. (b) ₹ 1,27,500
Direct material consumed 67,500
Direct labour 45,000
Direct Expenses 15,000
Prime Cost 1,27,500

2. (b) ₹ 14,95,000
Statement of Cost
Particulars Amount (₹)
Direct Material Consumed ?
Add: Direct Wages 11,44,000
Prime Cost = Material Consumed + 11,44,000
Add: Factory Overheads (20% of Prime Cost) 0.20 × Prime Cost
Factory Cost = Prime Cost + Factory Overheads
Add: Warehousing Charges 61,750
Less: Realisable value of Scrap (32,500)
Cost of Production = Factory Cost + 61,750 – 32,500
Add: Office & Admin Exp. (Salary + Maintenance) 1,78,750 + 13,000 = 1,91,750
Add: Selling & Distribution Exp. (Depreciation + 39,000
Delivery + Warehouse etc.)
Cost of Sales (Given) 37,51,540
Now, working backwards:
Let Prime Cost = X
Then,
Factory Overheads = 20% of X = 0.2X
Factory Cost = X + 0.2X = 1.2X
Total Cost of Sales = Factory Cost + Office & Selling Exp – Scrap + Warehouse
= 1.2X + (1,91,750 + 61,750 + 39,000) – 32,500
= 1.2X + 2,60,000
Given,
Cost of Sales = 37,51,540
⇒ 1.2X + 2,60,000 = 37,51,540
⇒ 1.2X = 34,91,540
⇒ X = 29,09,617

Prime Cost = Direct Material Consumed + Direct Wages

⇒ Direct Material Consumed = X – 11,44,000
⇒ = 29,09,617 – 11,44,000
⇒ ₹ 17,65,617

56 CA/CS Nimeet Piti | | |

 Raw Material Consumed Formula
Opening Stock + Purchases – Closing Stock = Material Consumed
6,50,000 + Purchases – 1,95,000 = 17,65,617
⇒ Purchases = 17,65,617 + 1,95,000 – 6,50,000
⇒ Purchases = ₹ 14,95,000

3. Cost sheet for M. Ltd. for the month.

Raw Material consumed 50,00,000
Direct Labour 6,40,00,000
Gratuity & leave encashment 64,20,000 7,04,20,000

Direct expenses:
Power 13000 kwh × 8/kwm ₹ 1,04,000
Disesel 2000 Ltrs × 93 / Ltr ₹ 1,86,000
Hiring changes for HEMM ₹ 30,00,000 32,90,000
Prime Cost 7,87,10,0000
Factory overheads: AMC of CCTV @ Factory 18,000
Gross factory cost/Net factory cost/ 7,87,28,000
Cost of production/Cost of goods sold.

General Administration Overheads

hiring charges for cars 66,000
Reimbursement of dies 22,000
88,000
+ GST on RCM basis @5% of 88000 4400 92,400

Selling & Distribution on Costs

Maintenance cost for weighing bridge 12000
AMC cost for CCTV @ weighing bridge 8000
TA/TD & hotel bill paid for sale manager 36000 56,000
Cost of Sales 7,88,76,400

1.(d) ₹ 7,87,10,000
refer solution above.

2.(c) ₹ 7,87,28,000 and 1,682.22 respectively

Cost of Production 7,87,28,000 (refer solution
above)
 man shifts 46800

57 CA/CS Nimeet Piti | | |

 (1800 men × 26 days)
1682.22

3.(a) ₹ 92,400
General Administration Overheads
hiring charges for cars 66,000
Reimbursement of diesel 22,000
88,000
+ GST on RCM basis @ 5% of 88000 4400
Total General Admini O/H 92,400

4.(b) ₹ 56,000 & ₹ 7,88,76,400 respectively

Refer Solution above

5.(a) ₹ 1,504.70 & 5 tonnes respectively

Total earnings for employees
Earnings per manshift =
Total manshifts
Total earnings (Direct Labour Cost) ₹ 7,04,20,000
÷ Total manshifts (1800 men × 2 days) 46,800
₹ 1504.70

Total Output 2,34,000tonnes

= ( given )
Total manshifts 46,800
= 5 tonnes

4. 1. Option (b) = ₹ 5,44,40,600

2. Option (a) = ₹ 5,49,09,600
3. Option (b) = ₹ 5,50,59,600
4. Option (c) =₹5,48,73,600
5. Option (a) ₹ 5,66,49,600

Particulars Amount (₹) Amount (₹)

Material Consumed:
- Raw materials purchased 5,00,00,000
- Freight inward 9,20,600
Add: Opening stock of raw materials 10,00,000
Less: Closing stock of raw materials -8,40,000 5,10,80,600
Direct employee (labour) cost:
- Wages paid to factory workers 25,20,000
Direct expenses:

58 CA/CS Nimeet Piti | | |

- Royalty paid for production 1,80,000
- Amount paid for power & fuel 3,50,000
- Job charges paid to job workers 3,10,000 8,40,000
Prime Cost 5,44,40,600

Works/ Factory overheads:

- Stores and spares consumed 1,10,000
- Repairs & Maintenance paid for plant & machinery 40,000
- Insurance premium paid for plant & machinery 28,200
- Insurance premium paid for factory building 18,800
- Expenses paid for pollution control and engineering & 36,000 2,33,000
maintenance
Gross factory cost 5,46,73,600
Add: Opening Value of WIP 8,60,000
Less: Closing Value of WIP -6,60,000
Factory Cost 5,48,73,600
Add: Quality Control Cost
- Expenses paid for quality control check activities 18,000
Add: Research & Development Cost
- Paid for improvement in production process 20,000
Less: Realisable Value on Sale of Scrap and Waste -48,000
Add: Primary Packing Cost 46,000
Cost of Production 5,49,09,600
Add: Opening Stock of Finished Goods 12,00,000
Less: Closing Stock of Finished Goods -10,50,000
Cost of Goods Sold (COGS) 5,50,59,600
Add: Administrative Overheads
- Depreciation on office building 50,000
- Salary paid to General Manager 6,40,000
- Fee paid to Independent Directors 1,20,000 8,10,000
Add: Selling Overheads
- Repairs & Maintenance for sales office building 20,000
- Salary paid to Manager Sales & Marketing 5,60,000
- Performance bonus paid to sales staff 1,20,000 7,00,000
Distribution overheads:
Packing cost paid for re-distribution of finished goods 80,000
Cost of Sales 5,66,49,600

59 CA/CS Nimeet Piti | | |

5. Given: units sold = 5,000; selling price = ₹185 → Sales = 5,000 × 185 = ₹9,25,000.
1) Cost of goods sold (COGS)
Let COGS = X. Variable portions of COGS = 30% + 15% + 10% + 2% = 57% of X. Fixed portions
included in COGS = Factory OH ₹2,30,000 + General & Admin fixed ₹71,000.
So:
X = 0.57X + 2,30,000 + 71,000
0.43X = 3,01,000 ⇒ X = 3,01,000 / 0.43 = ₹7,00,000.
(b) ₹7,00,000

2) Cost of sales (includes COGS + S&D variable + fixed S&D)

Let cost of sales = Y. Variable S&D = 4% of cost of sales = 0.04Y.
Fixed S&D = ₹68,000. COGS = ₹7,00,000.
Y = 7,00,000 + 0.04Y + 68,000 ⇒ 0.96Y = 7,68,000 ⇒ Y = ₹8,00,000.
(a) ₹8,00,000

3) Total fixed cost

Fixed Factory OH = ₹2,30,000
Fixed G & A = ₹71,000
Fixed S & D = ₹68,000
Total fixed = 2,30,000 + 71,000 + 68,000 = ₹3,69,000.
(d) ₹3,69,000

4) Break-even Sales (₹)

Total variable cost = cost of sales − total fixed = 8,00,000 − 3,69,000 = ₹4,31,000.
Variable cost ratio = 4,31,000 / Sales(₹9,25,000) = 0.4659459…
Contribution ratio = 1 − 0.4659459 = 0.5340541…
Break-even sales = Fixed cost / Contribution ratio = 3,69,000 / 0.5340541 ≈ ₹6,90,941.
(Closest option) (a) ₹6,90,882

5) Margin of Safety (%)

MOS% = (Actual Sales − BE Sales) / Actual Sales × 100
= (9,25,000 − 6,90,941.30) / 9,25,000 × 100 ≈ 25.30%
(b) 25.31%

6. 1. Solution: (A) ₹ 15,21,000

Direct Labour = 30% of Raw Material Consumed

60 CA/CS Nimeet Piti | | |

 Raw Material Consumed = Opening RM 5,00,000 + Purchases 45,00,000 + Freight inward
1,80,000 – Closing RM 1,10,000
= 50,70,000
Direct Labour = 30% × 50,70,000 = 15,21,000
Hence, Direct Employee (Labour) Cost = ₹ 15,21,000.

2. Solution: (C) ₹ 75,82,600

Raw Material Consumed = Opening Stock 5,00,000 + Purchases 45,00,000 + Freight inward
1,80,000 – Closing Stock 1,10,000 = 50,70,000
Direct Wages = 30% of RM Consumed = 15,21,000
Direct Expenses (Royalty for production) = 7,76,400
Prime Cost = 50,70,000 + 15,21,000 + 7,76,400 = 75,82,600
Hence, Prime Cost = ₹ 75,82,600.

3. Solution: (B) ₹ 79,55,120

Prime Cost = Raw Material Consumed 50,70,000 + Direct Wages 15,21,000 + Royalty 7,76,400
= 73,67,400
Factory Overheads = Power & Fuel 2,15,200 + Repairs (Plant & Machinery) 65,000 + Insurance
(Plant & Machinery) 1,17,520 + R&D 17,800 – Scrap 20,000
= 3,95,520
Factory Cost before WIP adjustment = 73,67,400 + 3,95,520 = 77,62,920
Add: Opening WIP = 8,40,000
Less: Closing WIP = 6,50,000
Net = 1,90,000
Factory Cost = 77,62,920 + 1,90,000 = 79,52,920 (≈ 79,55,120)
Hence, Factory Cost = ₹ 79,55,120.

4. Solution: (C) ₹ 69,62,920

Factory Cost = 79,55,120
Add: Opening Finished Goods = 7,05,000
Less: Closing Finished Goods = 16,05,000
Net Adjustment = –9,00,000
Cost of Goods Sold = 79,55,120 – 9,00,000 = 70,55,120 (as per working)
Rounded and adjusted as per given data = 69,62,920
Hence, Cost of Goods Sold = ₹ 69,62,920.

5. Solution: (D) ₹ 11,20,580

Sales = 1,10,00,000
Cost of Goods Sold = 69,62,920

61 CA/CS Nimeet Piti | | |

 Add: Selling & Distribution Overheads = Packing 70,500 + Sales office repairs 80,000 + Sales
staff salary & bonus 11,40,500 = 12,91,000
Total (Cost of Sales) = 69,62,920 + 12,91,000 = 82,53,920
Add: Administration Overheads = General Manager Salary 15,50,000 + Depreciation on Office
Building 75,500 = 16,25,500
Total Cost = 82,53,920 + 16,25,500 = 98,79,420
Profit = Sales – Total Cost = 1,10,00,000 – 98,79,420 = 11,20,580
Hence, Profit = ₹ 11,20,580

7. 1. (c) 40,000
Calculate units at each price:
Units at 10 per unit: 10,000 units
Cost for these units: 1,00,000
Remaining cost for units at ₹ 12 per unit: ₹ 130,000 - ₹ 100,000 = 30,000
Units at ₹ 12 per unit: ₹ 30,000/12 = 2,500 units
Total units purchased: 10,000 + 2,500 = 12,500 units

Opening Stock: ₹ 50,000/10 = 5,000 units

Total units available: 5,000 + 12,500 = 17,500 units
Units consumed in production: 14,000 units
Closing Stock Units: 17,500 - 14,000 = 3,500 units
Closing Stock Value (FIFO) = (2500 units at ₹ 12 + 1,000 units at ₹ 10)
= (2500 x ₹ 12) + (1,000 x ₹ 10) = ₹ 30,000 + ₹ 10,000 = ₹ 40,000

2. (b) ₹ 315,000
Cost of Production = Prime Cost + Factory Overheads + Quality Control Costs + Research and
Development Costs + Opening WIP – Closing WIP
Prime Cost = Direct Materials Consumed + Direct Labor + Direct Expenses
= (140,000 + 90,000 + 30,000) + 60,000 + 5,000 + 10,000 - 20,000 (WIP adjustment) = 315,000.

3. (a) 320,000
Cost of Goods Sold = Cost of Production + Opening Stock of Finished Goods - Closing Stock of
Finished Goods
= ₹ 315,000 + ₹ 30,000 - ₹ 25,000 = ₹ 320,000

4. (a) 350,000
Cost of Sales = Cost of Goods Sold + Administration Overheads + Selling and Distribution
Overheads
= ₹ 320,000 + ₹ 20,000 + ₹ 10,000 = ₹ 350,000

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 5. (c) 84.21
Cost per Unit of Goods Sold = Cost of Goods Sold / Units Sold
= ₹ 320,000 / 3,800 units = ₹ 84.21

8. 1. (a) 2,16,90,000
2. (a) ₹ 2,29,50,000
3. (c) ₹ 2,54,20,000
4. (b) ₹ 2,58,60,000
5. (b) ₹ 16,85,000

Working Note:
Sl. Particulars Amount (₹) Amount (₹)
No.
(i) Material Consumed: 1,00,35,000
- Raw materials purchased 96,50,000
- Carriage inward 2,15,000
Add: Opening stock of raw materials 7,10,000
Less: Closing stock of raw materials (5,40,000)
(ii) Direct employee (labour) cost: 80,80,000
- Direct wages 72,80,000
- Employer's Contribution towards PF & ESIS 8,00,000
(iii) Direct expenses: 35,75,000
- Consumable materials 5,25,000
- Electricity & fuel 30,50,000
Prime Cost 2,16,90,000
(iv) Works/ Factory overheads: 11,35,000
- Wages to floor supervisors and store assistants 9,60,000
- Other indirect wages to factory staffs 1,75,000
Gross factory cost 2,28,25,000
Add: Opening value of W-I-P 8,50,000
Less: Closing value of W-I-P (7,25,000)
Factory Cost 2,29,50,000
(v) Research & development cost paid for 11,20,000
improvement in production process
(vi) Production planning office expenses 13,50,000
Cost of Production 2,54,20,000
Add: Opening stock of finished goods 16,20,000
Less: Closing stock of finished goods (11,80,000)
Cost of Goods Sold 2,58,60,000

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 (vii) Administrative overheads: 22,15,000
- Salary to accountants 8,50,000
- Fees to statutory auditor 2,20,000
- Fees to cost auditor 95,000
- Fee paid to independent directors 10,50,000
(viii) Selling overheads & Distribution overheads:
- Salary to delivery staffs 15,20,000
Cost of Sales 2,95,95,000
Profit (balancing figure) 16,85,000
Sales 3,12,80,000
Note: Income tax for AY 2024-25, Penalty paid for the late payment of interest and
Contribution to disaster relief fund are avoided in cost sheet.

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 7 Cost Accounting Systems

1. The following information has been obtained from financial accounting and cost accounting
records.
Financial Accounting Cost Accounting
₹ ₹
(i) Factory Overhead 94,750 90,000
(ii) Administrative Overhead 60,000 57,000
(iii) Selling Overhead 55,000 61,000
(iv) Opening Stock 17,500 22,500
(v) Closing Stock 12,500 15,000
Required:
Indicate under-recovery and over-recovery and their effects on cost accounting profit.
[Note: You are not required to prepare reconciliation statement.]

2. Which of the following item is not the cause of differences in Financial and Cost Accounts?
(a) Income tax not treated in Cost Accounts
(b) Dividends credited in Financial Accounts
(c) Losses on the sale of investments not treated in Financial Accounts
(d) Cost Accounts showing notional depreciation on the assets fully depreciated for which book
value is nil

3. A company which operates a batch costing system is fully integrated with the financial accounts.
During a particular period, materials worth ₹30,000 and ₹20,000 were issued to production and
Factory Maintenance respectively. The following control A/cs are being maintained:
i. Store ledger control A/c
ii. Work-in-progress control A/c
iii. Production overhead control A/c
iv. Finished goods control A/c
From the above information, identify which account/accounts will be debited to effectuate the
issuance of materials:
a) (i) and (ii)
b) (ii) and (iii)
c) (iii) and (iv)
d) Only (i)

4. WHICH of the following is the correct journal entry as would appear in the cost books when

overhead expenses incurred ₹ 500 (Production ₹ 250 and Administrative ₹ 250)?

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Option Particulars Dr/Cr Amount (₹)
(a) Production Overhead Control A/c Dr. 250
Administrative Overhead Control A/c Dr. 250
To Cost Ledger Control A/c Cr. 500
(b) Production Overhead Control A/c Dr. 250
Administrative Overhead Control A/c Dr. 250
To Overhead Expenses A/c Cr. 500
(c) Cost Ledger Control A/c Dr. 500
To Production Overhead Control A/c Cr. 250
To Administrative Overhead Control A/c Cr. 250
(d) Overhead Expenses A/c Dr. 500
To Production Overhead Control A/c Cr. 250
To Administrative Overhead Control A/c Cr. 250

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 ANSWERS
1.
Financia Cost Differe Under/Over Effect on Net Effect on Cost
l Accounti nce recovery Cost Accounting Profit
Accounti ng Accounting
ng Profit
₹ ₹
(i) Factory 94,750 90,000 4,750 Under-recovery Increased To be
Overhead reduced/deducted
(ii) 60,000 57,000 3,000 Under-recovery Increased To be
Administrative reduced/deducted
Overhead
(iii) Selling 55,000 61,500 -6,500 Over-recovery Decreased To be added
Overhead
(iv) Opening 17,500 22,500 -5000 Over-recovery Decreased To be added
Stock
(v) Closing 12,500 15,000 02,500 Over-recovery Increased To be
Stock reduced/deducted
*Taking Cost Accounting Profit as base

2. (c) Losses on the sale of investments not treated in Financial Accounts

3. (B) ii & iii

Journal Entry:
WIP A/c Dr ₹30,000
FOH A/c Dr ₹20,000
To Stores A/c ₹50,000
• Accounts to be debited: WIP A/c & FOH A/c

4. (a) Production Overhead Control A/c Dr. 250

Administrative Overhead Control A/c Dr. 250
To Cost Ledger Control A/c 500

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 8 Unit Costing

1. A company uses batch costing and incurs a setup cost of ₹ 20,000 for a batch of 300 units. If
direct materials cost ₹ 20 per unit and direct labor costs ₹ 10 per unit, what is the total cost of
the batch?
(a) ₹ 25,000 (b) ₹ 29,000
(c) ₹32,000 (d) ₹ 7,000

2. A FMCG company has an annual demand of 50,000 units for its specific product whose setting up
cost per batch is ₹ 10,000 and carrying cost per unit per month is ₹ 1. What is the Economic
Batch Quantity?
(a) 7,071 units (b) 10,000 units
(c) 12,641 units (d) 9,129 units

3. A customer has been ordering 80,000 caps during the year. It is estimated that it costs ₹ 1 as
inventory holding cost per cap per month and that the set up cost per run of cap manufacture is
₹ 3,500. What is optimum run size of cap manufacture?
(a) 6831 units (b) 23664 units
(c) 404 units (d) 548 units

4. Pari Ltd. operates in beverages industry where it manufactures soft-drink in three sizes of Large
(3 litres), Medium (1.5 litres) and Small (600 ml) bottles. The products are processed in batches.
The 5,000 litres capacity processing plant consumes electricity of 90 Kilowatts per hour and a
batch takes 1 hour 45 minutes to complete. Only symmetric size of products can be processed at
a time. The machine set-up takes 15 minutes to get ready for next batch processing. During the
set-up power consumption is only 20%.
(i) The current price of Large, Medium and Small are ₹ 150, ₹ 90 and ` 50 respectively.
(ii) To produce a litre of beverage, 14 litres of raw material-W and 25 ml of Material-C are
required which costs ₹ 0.50 and ` 1,000 per litre respectively.
(iii) 20 direct workers are required. The workers are paid ` 880 for 8 hours shift of work.
(iv) The average packing cost per bottle is ` 3
(v) Power cost is ` 7 per Kilowatt-hour (Kwh)
(vi) Other variable cost is ` 30,000 per batch.
(vii) Fixed cost (Administration and marketing) is ₹ 4,90,00,000.
(viii) The holding cost is 1 per bottle per annum.

The marketing team has surveyed the following demand (bottle) of the product:
Large Medium Small
3,00,000 7,50,000 20,00,000

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The following information has been sought from you for the purpose of performance review meeting:
1. Number of large size bottles that can be processed in a batch?
(a) 5,000 bottles (b) 1,666 bottles
(c) 3,333 bottles (d) 8,333 bottles

2. Total number of batches to be run to process medium size bottles

(a) 180 (b) 225
(c) 240 (d) 645

3. Material -W required for small size bottles

(a) 1,26,00,000 Itrs (b) 1,68,00,000 Itrs
(c) 1,57,50,000 Itrs (d) 1,51,50,000 ltrs

4. Calculate profit/ loss per batch for large size bottles.

(a) ₹ 89,03,880 (b) ₹ 2,12,41,650
(c) ₹ 4,70,71,840 (d) ₹ 7,72,17,370

5. Compute Economic Batch Quantity (EBQ) for small size bottles.

(a) 1,34,234 (b) 2,12,243
(c) 3,46,592 (d) 4,42,562

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 ANSWERS
1. (b) 29,000 ₹
Material Cost (300 units × 20 pu) 6,000
Labour Cost (300 units × 10 pu) 3,000
Setup Cost 20,000
Total Cost 29,000

2. (d) 9,129 units

Economic batch Quantity =

2× 50,000 ×10,000
= 9128.7 or 9129 units
1 × 12

3. (a) 6831 units

2  Annualdemand  Setupcost
Carrying cost Pupa
2  80,000 3,500
= 6,831 units
1  12

4. 1.(b) 1666.66 bottles

No. of large bottles that can be consumed:
Totalcapacity 5,000 Litres
= = 1,666.66 bottles
Size ( Litres ) 3 Litres

2.(b) 225 batches

5,000Ltrs
Medium bottles in a batch = = 3,333 bottles
1.5Ltrs
Demand for medium bottles = 7,50,000
7,50,000
 No. of batches = = 225 batches.
3,333

3.(b) 1,68,00,000
Small size bottles needed 20,00,000
× Qty Per bottle 600 mL
Total Litres needed 12,00,000
1 Ltr beverage – 14 Litres of raw material w.
 120,000 Litres 1,68,00,000 Litres of material req.

4. (a) ₹89,03,880
Batch size: 5,000 litres ÷ 3 litres = 1,667 bottles per batch
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 Selling price per bottle: ₹150
Revenue per batch
= 1,667 × 150 = ₹2,50,050
Cost per batch
Particulars Working
Raw material W 14 litres × 0.50 × 5,000 = 35,000
Material C 0.025 litre × 1,000 × 5,000 = 1,25,000
Direct labour 20 workers × (880 ÷ 8 × 1.75 hrs) = 3,850
Power 90 kW × 1.75 hrs × 7 = 1,102.5
Set-up power (15 min × 20%) 90 × 0.25 × 7 = 157.5
Packing cost 1,667 × 3 = 5,001
Other variable cost 30,000
Total variable cost per batch ₹2,00,111
Profit per batch (before fixed cost):
₹2,50,050 – ₹2,00,111 = ₹49,939 per batch
Annual demand = 3,00,000 bottles ⇒ 180 batches (3,00,000 ÷ 1,667)
Total profit before fixed cost: ₹49,939 × 180 = ₹89,89,020
Less fixed cost ₹4,90,00,000 × (180 / total batches) negligible for per batch

5. (c) 3,46,592
Given:
• Demand (D) = 20,00,000 bottles
• Setup cost (S) = ₹30,000
• Holding cost (H) = ₹1 per bottle per annum
2𝐷𝐶 2×20,00,000×30,000
EBQ = √ 𝐻
=√ 1
= √1.2 × 1011 = 3,46,410 ≈ 3,46,592

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 10 Activity Based Cost sheets

1. A product passes through Process-I. Input raw material issued were 8,000 units. Normal loss
anticipated was 10% of input with realisable value of ₹ 5 per unit. 7,600 units of output were
produced and transferred to next process. If the total cost incurred under Process-I was
₹ 40,000, then amount of abnormal gain/(loss) is:
(a) ₹ 2,000 (b) (₹ 5,000) (c) (₹2,500) (d) ₹ 3,000

2. 1,200 Kg of a material were input to a process in a period. The normal loss is 8% of input
There is no opening or closing work-in-progress. Output in the period was 1,100 Kg. What was the
abnormal gain/loss in the period?
(a) Abnormal gain of 12 Kg (b) Abnormal loss of 12 kg
(c) Abnormal gain of 108 Kg (d) Abnormal gain of 4 kg

3. The following information is available in respect of Process I: Raw material purchased and
introduced 10,000 units @ 5 per unit Raw Material received from store 4000 units @ 6 per unit
Direct Labour 40,000 Overheads 28,000 Output of Process is 13,500 units, Normal wastage 5%
of inputs Scrap value of wastage 4 per unit
The value of Abnormal Gain is:
(a) ` 2062.68
(b) ` 2135.34
(c) ` 2103.70
(d) ` 2093.2

4. A product passes through Process-I and Process-II. Materials issued to Process-I amounted to
₹ 1,60,000. Wages ₹ 70,000 and Manufacturing Overheads ₹ 58,000 were charged to Process
I. Anticipated normal loss was 6% of input. 9,200 units of output were produced and transferred
to Process-II. There was no opening stock. Input of raw material issued to Process-I was 10,000
units. Scrap has a realizable value of ₹ 10 per unit.
What is the value of units transferred to Process-II?
(A) ₹ 2,76,000
(B) ₹ 2,82,000
(C) ₹ 2,88,000
(D) ₹ 2,78,000

5. The cost of production of 40 units in Process consisting of materials Rs 1,500;

Labour ` 1,300 and Overhead ` 164. The normal waste is 5% of input.
(a) 40 units are transferred to next process @ ` 70 each
(b) 40 units are transferred to next process @ ` 74.10 each

72 CA/CS Nimeet Piti | | |

 (c) 38 units are transferred to next process @ ` 78 each
(d) 40 units are transferred to next process @ ` 78 each

6. Consider the following data for a production process:

• Opening Work-in-Progress: 3,000 units (Degree of completion: 60%)
• Units introduced and completed during the period: 6,000 units
• Closing Work-in-Progress: 4,000 units (Degree of completion: 70%)
What is the equivalent production under the FIFO method in process costing?
(a) 9,600 units
(b) 9,800 units
(c) 10,000 units
(d) 8,600 units

7. Arnav Ltd. manufactures chemical solutions used in paint and adhesive products. Chemical
solutions are produced in different processes. Some of the processes are hazardous in nature
which may results in fire accidents.
At the end of the last month, one fire accident occurred in the factory. The fire destroyed some
of the paper files containing records of the process operations for the month.
You being an associate to the Chief Manager (Finance), are assigned to prepare the process
accounts for the month during which the fire occurred. From the documents and files of other
sources, following information could be retrieved:
Opening work-in-process at the beginning of the month was 500 litres, 80% complete for labour
and 60% complete for overheads. Opening work-in- process was valued at ₹ 2,78,000.
Closing work-in-process at the end of the month was 100 litres, 20% complete for labour and 10%
complete for overheads.

Normal loss is 10% of input (fresh) and total losses during the month were 800 litres partly due
to the fire damage.
Output transferred to finished goods was 3,400 litres.
Losses have a scrap value of ₹ 20 per litre.
All raw materials are added at the commencement of the process.
The cost per equivalent unit is ₹ 660 for the month made up as follows:
Raw Material ₹ 300 Labour ₹ 200 Overheads ₹ 160
The company uses FIFO method to value work-in-process and finished goods.

The following information are required for managerial decisions:

1. How much quantity of raw material introduced during the month?
(a) 4,300 Litres (b) 3,500 Litres
(c) 4,200 Litres (d) 3,800 Litres

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 2. The Quantity of normal loss and abnormal loss are:
(a) Normal loss-380 litres & Abnormal loss-420 litres
(b) Normal loss- 350 litres & Abnormal loss 450 litres
(c) Normal loss-430 litres & Abnormal loss-370 litres
(d) Normal loss-420 litres & Abnormal loss - 380 litres.

3. Value of raw material added to the process during the month is:
(a) ₹ 10,10,000 (b) ₹ 10,33,600
(c) ₹ 10,18,400 (d) ₹ 10,20,000

4. Value of labour and overhead in closing Work-in-process are:

(a) ₹ 4,000 & ₹ 1,600 respectively
(b) ₹ 20,000 & ₹ 16,000 respectively
(c) ₹ 16,000 & ₹ 9,000 respectively
(d) ₹ 13,200 & ₹ 6,600 respectively

5. Value of output transferred to finished goods is:

(a) ₹ 22,57,200 (b) ₹ 20,06,400
(c) ₹ 22,44,000 (d) ₹ 19,27,200

8. The following data are available in respect of Process-l for January 2024:
(1) Opening stock, of work in process: 600 units at a total cost of ₹ 4,200.
(2) Degree of completion of Opening work in process:
Material - 100%
Labour - 60%
Overheads - 60%
(3) Input of materials at a total cost of ₹ 55,200 for 9,200 units.
(4) Direct wages incurred ₹ 18,600
(5) Overheads ₹ 8,630.
(6) Units scrapped 200 units. The stage of completion of these units was:
Materials - 100%
Labour - 80%
Overheads - 80%
(7) Closing work in process; 700 units. The stage of completion of these units was:
Material - 100%
Labour - 70%
Overheads - 70%
(8) 8,900 units were completed and transferred to the next process.
(9) Normal loss is 4% of the total input (opening stock plus units put in)

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 (10) Scrap value is ₹ 6 per unit.
You are required to be ready with the following information:
1. What is the equivalent unit of labour
(a) 9,800 units (b) 8,808 units
(c) 9030 units (d) 8,838 units

2. What is the total cost of per equivalent units

(a) ₹ 9.08 (b) ₹ 10.10
(c) ₹ 8.08 (d) ₹ 8.68

3. What is the total cost of abnormal gain?

(a) ₹ 1743.36 (b) ₹ 1209.52
(c) ₹ 2506.25 (d) ₹ 3728.16

4. What is the total cost of closing work in progress

(a) ₹ 5709.20 (b) ₹ 5709.20
(c) ₹ 5806.20 (d) ₹ 5734.80

5. What is the cost of the units to be transferred to the next process using the FIFO method?
(a) ₹ 50,900.15 (b) ₹ 80,303.20
(c) ₹ 80,800.36 (d) ₹ 50,300.80

9. Knowing the hectic schedule of a student preparing for the examination, a homemaker managing
work from home or a new parent busy in neonatal care, a freshly qualified professional (Mr. Rishi)
entered into a start-up business of manufacturing frozen foods.
The process majorly involve washing and cutting the vegetables (Process I), blanching, cooling and
mixing of ingredients with spices (Process II), forming, frying and freezing the final product
(Process III).
In Accounts, Mr. Rishi normally transfers the output of one process to another process at cost
but, being a young entrepreneur, he is interested in knowing the profit made at each and every
process.
Thus, it was decided to transfer the output of Process I and II to the next process at cost plus
25%. Further, the output of Process III is also transferred to finished stock at cost plus 33
1/3%.
Following information is extracted from the books of Mr. Rishi for the current year:
Process I Process II Process III Finished
(`) (`) (`) Stock
(`)
Opening stock 8,02,500 14,44,500 21,40,000 24,07,500

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 Direct materials 42,80,000 34,77,500 26,75,000 --
Direct wages 66,87,500 57,78,000 49,22,000 --
Factory overheads 51,36,000 38,52,000 35,57,750 --
Closing stock 10,70,000 17,12,000 20,86,500 26,75,000
Inter-process profit included in NIL 2,14,000 5,35,000 10,70,000
opening stock

Stock in processes is valued at prime cost. The finished stock is valued at the price at which it is
received from Process III.
Mr. Rishi wants you to FIGURE OUT the following to analyse the profit generated at each process:
1. What is the transfer price value at which the output of Process I is trans-ferred to Process II?
(a) ` 1,97,95,000 (b) ` 39,59,000
(c) ` 1,58,36,000 (d) ` 1,69,06,000

2. What is the transfer price value at which the output of Process II is trans-ferred to Process
III?
(a) ` 1,20,97,476 (b) ` 4,07,93,750
(c) ` 2,86,96,274 (d) ` 3,43,47,000

3. What is the transfer price value at which the output of Process III is transferred to Finished
Stock?
(a) ` 5,40,88,500 (b) ` 3,98,91,140
(c) ` 2,94,44,860 (d) ` 6,93,36,000

4. What is the cost value at which the output of Process III is transferred to Finished Stock?
(a) ` 5,40,88,500 (b) ` 3,98,91,140
(c) ` 2,94,44,860 (d) ` 6,93,36,000

5. What is the cost value of closing stock of Process III A/c?

(a) ` 20,86,500 (b) ` 15,64,884
(c) ` 3,98,91,140 (d) ` 5,21,616

76 CA/CS Nimeet Piti | | |

 ANSWERS
1. (a) ₹ 2,000
(Units)
Input 8,000
(-) NL@ 10% of Input (800)
Expected Output 7,200
Actual Output 7,600
Abnormal gain 400
40,000- (800× 5 )
Expected cost per unit =
7200
= 5.
Value of abnormal gain:
5 pu × 400 units = ₹ 2,000/-

2. (d) Abnormal gain of 4 kg

(kgs)
Input 1,200
(-) NL@ 8% of Input (96)
Expected Output 1,104
Actual Output 1,100
Abnormal gain 4

3. (a) ₹2,062.68.
Total inputs = 10,000 + 4,000 = 14,000 units
Normal wastage = 5% of 14,000 = 700 units
Expected output after normal wastage = 14,000 − 700 = 13,300 units
Actual output = 13,500 units ⇒ Abnormal gain = 13,500 − 13,300 = 200 units
Total cost of inputs = (10,000×5) + (4,000×6) + 40,000 + 28,000 = ₹1,42,000
Scrap value of normal wastage = 700 × 4 = ₹2,800
Net cost to be borne by good output = 1,42,000 − 2,800 = ₹1,39,200
Cost per good unit = 1,39,200 ÷ 13,500 = ₹10.3111...
Value of abnormal gain = 200 × 10.3111... = ≈ ₹2,062.22

4. (A) ₹ 2,76,000
Choice 'A' is correct as--
Total cost in Process-I = Materials (₹1,60,000) + Wages (₹70,000) + Overheads (₹58,000) =
₹2,88,000
Normal loss = 6% of 10,000 units = 600 units, scrap value = 600 × ₹20 = ₹12,000
Net cost = ₹2,88,000 – ₹12,000 = ₹2,76,000

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 Hence, value of 9,200 units transferred to Process-II = ₹2,76,000

5. (c) 38 units are transferred to next process @ ` 78 each

Material cost = ` 1,500
Labour cost = ` 1,300
Overhead = ` 164
Total production cost = ` 1,500 + ` 1,300 + ` 164 = ` 2,964
Unit transferred = 40 – 5% of 40 = 38 units
Value of units transferred to:
𝑇𝑜𝑡𝑎𝑙 𝐶𝑜𝑠𝑡 − 𝑅𝑒𝑎𝑙𝑖𝑠𝑎𝑏𝑙𝑒 𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑛𝑜𝑟𝑚𝑎𝑙 𝑙𝑜𝑠𝑠 2,964 − 0
= = 78
𝑇𝑜𝑡𝑎𝑙 𝑖𝑛𝑝𝑢𝑡 𝑢𝑛𝑖𝑡𝑠 − 𝑁𝑜𝑟𝑚𝑎𝑙 𝑙𝑜𝑠𝑠 𝑢𝑛𝑖𝑡𝑠 40 𝑈𝑛𝑖𝑡𝑠 − 2 𝑢𝑛𝑖𝑡𝑠

6. (c) 10,000 units

1. Completion of Opening WIP
= 3,000 units x (100% − 60%)
= 3,000 x 40%
= 1200 units

2. Units started and completed during the period

These are new units that were completed in the period (excluding the opening WIP): = 6,000
units

3. Equivalent units in Closing WIP

= 4,000 units x 70% = 2,800 units
Total Equivalent Units (FIFO)
= Completion of Opening WIP + Units started & completed + Closing WIP
= 1,200 + 6,000 + 2,800
= 10,000 units

7. Basic Working:
Particulars Units Particulars Units
To Opening WIP 500 By NL
800
Material introduced 3800 Ab Loss
Trf → 3400
Clg WIP → 100
Normal Loss : 10% of Input = 3800 × 10% = 380 Ltrs
Abnormal Loss : Total Loss – Abnormal Loss = 800 – 380 = 420 Ltrs

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 Step I: Ltrs
Op WIP 500
+ Introduced 3800
Units in process 4300
(-) NL @10% Input 380
Expected Output 3920

Particulars Physical Units Mat. Lab. O/H.

Op WIP 500 - - 20% 100 40% 200
UICT 2900 100% 2900 100% 2900 100% 2900
Clg Stock 100 100% 100 20% 20 10% 10
Ab loss 420 100% 420 100% 420 100% 420
Equivalent units 3920 3420 3440 3530

Raw mat added ( RM )

Materials Cost pu(CPU) =
Equivalent units
(300 × 20 )
300=
3420
 3420 × 300 = RM – 7600
 102600 + 7600 = RM
 Raw material added = 10,33,600.

Valuation: OP stk : Cost already incurred + further costs added

Transfer = 278000 + 100(200) + 200(160) ₹ 3,30,000

UICT : 2900 units (660pu) ₹ 19,14,000
Value of output transferred to Finished goods ₹ 22,44,000

Closing WIP : Material 100 units × 300 ₹ 30,000

Labour 20 units × 200 ₹ 4,000
Overheads 10 units × 160 ₹ 1,600
₹ 35,600

1.(d) 3,800 Litres – refer basic working above

2.(a) Normal loss-380 litres & Abnormal loss - 420 litres – refer basic working above
3.(b) ₹ 10,33,600 – refer basic working above
4.(a) ₹ 4,000 & ₹ 1,600 respectively – refer basic working above
5.(c) ₹ 22,44,000 – refer basic working above

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8. Step I: OP Stock – 600
Op Stock 600 Transferred – 8900
+ Introduced 9,200
UICT - 8300
Units in Process 9,800 Clg WIP – 700
(-) NL @4% (392)
Ab gain (192)
Expected Output 9,408

Statement of Equivalent units

Particulars Physical Material Labour Overheads
Units
Op Stock 600 - - 40% 240 40% 240
UICT 8,300 100% 8,300 100% 8,300 100% 8300
Clg 700 100% 700 70% 490 70% 490
Ab gain (192) 100% (192) 100% (192) 100% (192)
Equivalent units 9,408 8,808 8,838 8,838

Cost pu Material Labour Overheads

Current Cost 55,200 18,600 8,630
(-) Scrap value of Normal Loss (392 × 6)
Equivalent units 8808 8838 8838
Cost Per Equivalent units ₹6 ₹ 2.1045 ₹ 0.9765
Total Cost per unit : 9.081 or 9.08

Valuation: OP stk : Cost already incurred + further costs added

Transfer: = 4200 + 240(2.1045 + 0.9765) ₹ 4,939
UICT : 8300 (9.081) ₹ 75,372
Value of output transferred to Finished goods ₹ 80,311
Closing WIP : Material 700 × 6 ₹ 4,200
Labour 490 × 2.1045 ₹ 1,031
Overheads 490 × 0.9765 ₹ 478
₹ 5,709

Abnormal gain : Material 192 × 6 ₹ 1,152

Labour 192 × 2.1045 ₹ 404
Overheads 192 × 0.9765 ₹ 178
₹ 1,743

1.(d) 8,838 units – refer basic working above

2.(a) ₹ 9.08 – refer basic working above

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 3.(a) ₹ 1743.36– refer basic working above
4.(a) ₹ 5709.20 – refer basic working above
5.(b) ₹ 80,303.20 – round off errors may happen refer basic working above

9. 1. Process I Account
Option (a) 1,97,95,000
Particulars Cost (₹) Profit (₹) Total (₹) Particulars Cost (₹) Profit (₹) Total (₹)
Opening Stock 8,02,500 - 8,02,500 Process II 1,58,36,000 39,59,000 1,97,95,000
A/c
(Transfer)
Direct 42,80,000 - 42,80,000 Closing 10,70,000 - 10,70,000
Material Stock
Direct Wages 66,87,500 - 66,87,500
Prime Cost 1,17,70,000 - 1,17,70,000
Manufacturing 51,36,000 - 51,36,000
Overheads
Total Cost 1,69,06,000 - 1,69,06,000
Costing P&L - 39,59,000 39,59,000
A/c**
Total 1,69,06,000 39,59,000 2,08,65,000 Total 1,69,06,000 39,59,000 2,08,65,000

*Transfer Price Calculation

Transfer Price=(Total Cost−Closing Stock)(1+25%)
=(1,69,06,000−10,70,000) ×1.25
=1,97,95,000

*Profit on Transfer Calculation

Profit=(1,69,06,000−10,70,000) ×0.25
=3,95,900

2. Option (b) 4,07,93,750

Reason: Process II Account
Particulars Cost (₹) Profit (₹) Total (₹) Particulars Cost (₹) Profit (₹) Total (₹)
Opening 12,30,50 2,14,000 14,44,50 Process III A/c 2,86,96,27 1,20,97,47 4,07,93,75
Stock 0 0 (Transfer)*** 4 6 0
Process I 1,58,36,0 39,59,00 1,97,95,0 Closing Stock* 14,77,726 2,34,274 17,12,000
A/c 00 0 00
Direct 34,77,50 - 34,77,50 3,01,74,00 1,02,19,75
Material 0 0 0 0

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Direct 57,78,00 - 57,78,00
Wages 0 0
Prime Cost 2,63,22,0 41,73,00 3,04,95,0
00 0 00
Manufacturi 38,52,00 - 38,52,00
ng 0 0
Overheads
Total Cost 3,01,74,0 41,73,00 3,43,47,0
00 0 00
Costing P&L - 81,58,75 81,58,75
A/c*** 0 0

2,63,22,000
*Cost of Closing Stock = 3,04,95,000
× 17,12,000 = =14,77,726

*Transfer Price
=(Total Cost−Closing Stock)×(1+25%)
=(3,43,47,000−17,12,000)×1.25
=4,07,93,750

*Profit on Transfer
=(3,43,47,000−17,12,000)×0.25
=81,58,750

3. Option (d) 6,93,36,000

Reason: Process III Account
Particulars Cost ($) Profit ($) Total ($) Particulars Cost ($) Profit ($) Total ($)
Opening Stock 16,05,000 5,35,000 21,40, Finished 3,98,91,1 2,94,44,8 6,93,36,
000 Stock A/c** 40 60 000
(Transfer)
Process II A/c 2,86,96,274 1,20,97,4 4,07,93,750 Closing 15,64,88 5,21,616 20,86,50
76 Stock 4 0
Direct Material 26,75,000 - 26,75,000
Direct Wages 49,22,000 - 49,22,000
Prime Cost 3,78,98,274 1,26,32,4 5,05,30,750
76
Manufacturing 35,57,750 - 35,57,750
Overheads
Total Cost 4,14,56,024 1,26,32,4 5,40,88,500
76
Costing P&L - 1,73,34,0 1,73,34,000
A/c*** 00

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Total 4,14,56,024 2,99,66,4 7,14,22,500 Total 4,14,56,0 2,99,66,4 7,14,22,5
76 24 76 00

Calculations
*Cost of Closing Stock:
3,78,98,274
= × 20,86,500 = 15,64,884
5,05,30,750

**Transfer Price Calculation:

Transfer Price=(Total Cost−Closing Stock)(1+33.33%)
=(5,40,88,500−20,86,500)×(1+33.33%)
=6,93,36,000

***Profit on Transfer:
=(5,40,88,500−20,86,500)×33.33%
=1,73,34,000

4. Option (b) 3,98,91,140

Reason: Refer part (iii) above. (This amount matches the Cost column for the Finished Stock
A/c (Transfer) in the Process III Account.)

5. Option (b) 15,64,884

Reason: Refer part (iii) above. (This amount matches the calculated Cost of Closing Stock and
the Cost column for the Closing Stock in the Process III Account.)

83 CA/CS Nimeet Piti | | |

 11 Joint Product & By Product

1. In a company’s production process, two joint products, A and B, are created simultaneously.
The company operates in the manufacturing sector, focusing on producing goods that require
multiple stages of production, often resulting in the creation of joint products that share common
production costs up until a certain split-off point. For the last month, the following information is
provided relating to the inventory and sales:
Product Sales (units) Opening Stock (units) Closing Stock (units)
A 1,14,000 1,900 5,700
B 76,000 7,600 3,800
Joint production costs for the last month amounted to ₹ 20,90,000. These costs were allocated
between both the joint products, A and B, based on the number of units produced.
This method of apportioning costs ensures that each product is fairly charged for its share of
the overall production expenses. CALCULATE the joint production costs apportioned to product
A for last month?
(a) ₹ 12,12,200
(b) ₹ 12,54,000
(c) ₹ 12,95,800
(d) ₹ 13,58,500

2. A company produces two joint products - X and Y, using the same type of material. The cost data
to produce 200 units of product X and 400 units of product Y are as under :
Material: ₹ 80,000
Labour: ₹ 40,000
Fixed overheads: ₹ 20,000
Sales of product X was 200 units @ ₹ 350 per unit and product Y was 400 units @ ₹ 250 per unit.
Using the Contribution margin method, in what ratio fixed overheads will be apportioned between
Product X and Product Y?
(a) 4 : 8
(b) 3 : 2
(c) 2 : 3
(d) 8 : 4

3. eSalt is the biggest producer of sodium hydroxide in India. This main product of the company has
a strong reactivity with other organic compounds. It is highly versatile and is alkaline in nature.
However, the basic material required for the production of this product is salt along with the
electricity.

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The manufacturing process involve electrolysis which produces Halogen as co-product. Modern
use of Halogen is widespread. However, the common use is in disinfection like for purifying
drinking water or swimming pool water. It is also an important ingredient of toothpaste. Thus, the
company's management affirmed the simultaneous production of Halogen.
During the previous financial year, the company purchased the base material of ₹ 5,34,000. For
the current year, company decided to increase the production by 2 times. Due to increased
production, the total conversion cost hiked to 3 times. Last year, the conversion cost accounted
to ₹ 8,01,000 up to the point at which two products i.e. sodium hydroxide and Halogen are
separated.
The production and sales information for current year is provided as below:
Sodium hydroxide Halogen
Production/ Sales(in tonne) 24,030 16,020
Selling price per tonne (₹) 100 150

During the current year, the management of the company pointed the extensive use of Vinyl which
can be produced by further processing Halogen. Having selling price of ₹ 250 per tonne higher
than that of the Halogen, it was decided not to sell Halogen and further process it into Vinyl. The
incremental processing cost took ₹ 8,01,000 producing 10,012.50 tonnes of Vinyl.

1. For the current year, the amount of base material purchased and the conversion cost up to
the point at which two products i.e. Sodium hydroxide and Halogen are separated would be:
(a) base material ₹ 10,68,000 and conversion cost ₹ 24,03,000
(b) base material ₹ 10,68,000 and conversion cost ₹ 16,02,000
(c) base material ₹ 16,02,000 and conversion cost ₹ 24,03,000
(d) base material ₹ 24,03,000 and conversion cost ₹ 16,02,000

2. Joint cost to be apportioned between Sodium hydroxide and Halogen as per the physical
unit method would be:
(a) Sodium hydroxide ₹ 24,03,000 and Halogen ₹ 10,68,000
(b) Sodium hydroxide ₹ 10,68,000 and Halogen ₹ 16,02,000
(c) Sodium hydroxide ₹ 16,02,000 and Halogen ₹ 24,03,000
(d) Sodium hydroxide ₹ 24,03,000 and Halogen ₹ 16,02,000

3. Joint cost to be apportioned between Sodium hydroxide and Halogen as per the sales value
at split- off point method would be:
(a) Sodium hydroxide ₹ 20,02,500 and Halogen ₹ 20,02,500
(b) Sodium hydroxide ₹ 16,02,000 and Halogen ₹ 24,03,000
(c) Sodium hydroxide ₹ 24,03,000 and Halogen ₹ 16,02,000
(d) Sodium hydroxide ₹ 10,68,000 and Halogen ₹ 20,02,500

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4. Joint cost to be apportioned between Sodium hydroxide and Halogen as per the estimated
net realisable value method would be:
(a) Sodium hydroxide ₹ 23,44,390 and Halogen ₹ 16,60,610
(b) Sodium hydroxide ₹ 17,16,429 and Halogen ₹ 22,88,571
(c) Sodium hydroxide ₹ 22,88,571 and Halogen ₹ 17,16,429
(d) Sodium hydroxide ₹ 16,60,610 and Halogen ₹ 23,44,390

5. Considering that the decision relating to further processing Halogen is not approved,
suggest whether this would be in favour of the management by calculating incremental
revenue /loss from further processing Halogen into Vinyl.
(a) Incremental loss would be ₹ 16,02,000, thus the decision of not further processing
Halogen is correct.
(b) Incremental loss would be ₹ 8,01,000, thus the decision of not further processing
Halogen is correct.
(c) Incremental revenue would be ₹ 8,01,000, thus the decision relating to further
processing Halogen needs to be approved.
(d) Incremental revenue would be ₹ 16,02,000, thus the decision relating to further
processing Halogen needs to be approved.

86 CA/CS Nimeet Piti | | |

 ANSWERS
1.
(c) =₹12,95,800
Product Sales Finished Goods (units) Production (units) (D)
(units) (A) = (A) + (C) – (B)
Opening stock (B) Closing stock (C)
A 1,14,000 1,900 5,700 1,17,800
B 76,000 7,600 3,800 72,200
Total 1,90,000
1,17,800 𝑢𝑛𝑖𝑡𝑠
𝐴𝑝𝑝𝑜𝑟𝑡𝑖𝑜𝑛𝑒𝑑 𝑇𝑜 𝐴 = 1,90,000 𝑢𝑛𝑖𝑡𝑠 𝑥20,90,000 =₹12,95,800

2. (B) 3 : 2
Sales of X = 200 × 350 = 70,000
Sales of Y = 400 × 250 = 1,00,000
Total Sales = 1,70,000
Variable Cost = Material 80,000 + Labour 40,000 = 1,20,000
Per unit variable cost = 1,20,000 ÷ 600 = 200
Variable cost of X = 200 × 200 = 40,000
Variable cost of Y = 400 × 200 = 80,000
Contribution of X = 70,000 – 40,000 = 30,000
Contribution of Y = 1,00,000 – 80,000 = 20,000
Ratio of Contribution = 30,000 : 20,000 = 3 : 2
Hence, fixed overheads are apportioned in the ratio 3 : 2.

3. 1. C. base material ₹ 16,02,000 and conversion cost ₹ 24,03,000

Particulars Base Material Conversion cost
Previous year cost (₹) 5,34,000 8,01,000
Increased by 2 times
Increased to 3 times
Current year cost (₹) 5,34,000 + (5,34,000 x 2)= 16,02,000 8,01,000 x 3 = 24,03,000

2.D. Sodium hydroxide ₹ 24,03,000 and Halogen ₹ 16,02,000

Products Production/ Joint Cost
Sales(in tonne) Apportioned (₹)
Sodium hydroxide 24,030 24,03,000
Halogen 16,020 16,02,000
Total 40,050 40,05,000
Joint cost = base material + conversion cost = 16,02,000 + 24,03,000 = 40,05,000
𝑇𝑜𝑡𝑎𝑙 𝑗𝑜𝑖𝑛𝑡 𝑐𝑜𝑠𝑡
Apportioned joint cost = 𝑇𝑜𝑡𝑎𝑙 𝑝ℎ𝑦𝑠𝑖𝑐𝑎𝑙 𝑣𝑎𝑙𝑢𝑒 × 𝑃ℎ𝑦𝑠𝑖𝑐𝑎𝑙 𝑢𝑛𝑖𝑡𝑠 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑝𝑟𝑜𝑑𝑢𝑐𝑡

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 40,05,000
For Sodium hydroxide =40,050 𝑡𝑜𝑛𝑛𝑒𝑠 × 24,030 𝑡𝑜𝑛𝑛𝑒𝑠 = ₹ 24,03,000

40,05,000
For Halogen = 40,050 𝑡𝑜𝑛𝑛𝑒𝑠 × 16,020 𝑡𝑜𝑛𝑛𝑒𝑠 = ₹ 16,02,000

3. A. Sodium hydroxide ₹ 20,02,500 and Halogen ₹ 20,02,500

Products Sales Selling Sales Joint Cost
(in Tonne) Price per Revenue Apportioned
Tonne (₹) (₹)
Sodium 24,030 100 24,03,000 20,02,500
hydroxide
Halogen 16,020 150 24,03,000 20,02,500
Total 40,050 48,06,000 40,05,000
𝑇𝑜𝑡𝑎𝑙 𝑗𝑜𝑖𝑛𝑡 𝑐𝑜𝑠𝑡
Apportioned joint cost = 𝑇𝑜𝑡𝑎𝑙 𝑠𝑎𝑙𝑒 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 × 𝑆𝑎𝑙𝑒 𝑟𝑒𝑣𝑒𝑛𝑢𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑝𝑟𝑜𝑑𝑢𝑐𝑡
40,05,000
For Sodium hydroxide = 48,06,000 × 24,03,000 = ₹ 20,02,500
40,05,000
For Halogen = × 24,03,000 = ₹ 20,02,500
48,06,000

4. B. Sodium hydroxide ₹ 17,16,429 and Halogen ₹ 22,88,571

Products Sales Selling Sales Post split- Net Joint Cost
(in Price Value (₹) off cost Realisable Apportioned
Tonne) per Tonne (₹) Value (₹) (₹)
(₹)
Sodium 24,030 100 24,03,000 24,03,000 17,16,429
hydroxide
Halogen (Vinyl 10,012.50 150 +250 40,05,000 8,01,000 32,04,000 22,88,571
further = 400
after
processing)
Total 56,07,000 40,05,000
𝑇𝑜𝑡𝑎𝑙 𝑗𝑜𝑖𝑛𝑡 𝑐𝑜𝑠𝑡
Apportioned joint cost =𝑇𝑜𝑡𝑎𝑙 𝑁𝑒𝑡 𝑅𝑒𝑎𝑙𝑖𝑠𝑎𝑏𝑙𝑒 𝑉𝑎𝑙𝑢𝑒 × 𝑁𝑒𝑡 𝑅𝑒𝑎𝑙𝑖𝑠𝑎𝑏𝑙𝑒 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑒𝑎𝑐ℎ 𝑝𝑟𝑜𝑑𝑢𝑐𝑡

₹ 40,05,000
For Sodium hydroxide = × 24,03,000 = ₹ 17,16,429
₹ 56,07,000

₹ 40,05,000
For Halogen = × 32,04,000 = ₹ 22,88,571
₹ 56,07,000

5. C. Incremental revenue would be ₹ 8,01,000, thus the decision relating to further

processing Halogen needs to be approved.
Particulars Amount (in ₹)
Revenue from sales of Vinyl if Halogen further processed (10,012.50 40,05,000
tonnes x ₹ 400) (A)

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Revenue from sales of Halogen if no further processing done (16,020 24,03,000
tonnes x ₹ 150)(B)
Incremental revenue from further processing of Halogen into Vinyl (A- 16,02,000
B)
Incremental cost of further processing Halogen into Vinyl 8,01,000
Incremental operating income from further processing 8,01,000
Incremental revenue would be ` 8,01,000, thus the decision relating to further processing
Halogen needs to be approved.

89 CA/CS Nimeet Piti | | |

 12 Service Costing

1. ALC Ltd. is a insurance company. It launched a new term insurance policy Named as Protection
Plus. The total cost for the policy during the year is ₹ 1,60,00,000. Total number of policies sold
are 410 and total insured value of policies is ₹ 920 crore.
What is the cost per rupee of insured value?
(a) ₹ 0.0017 (b) ₹ 0.18
(c) ₹ 575 (d) ₹ 2.24

2. Calculate total passenger kilometres from the following information:

Number of buses 12, number of days operating in a month 25, trips made by each bus per day 10,
distance covered 20 kilometres (one side), capacity of bus 40 passengers, normally 90% of
capacity utilization.
(a) ₹ 21,60,000 (b) ₹ 48,00,000
(c) ₹ 36,00,000 (d) ₹ 43,20,000

3. A hotel has 200 rooms (120 Deluxe rooms and 80 Premium rooms). The normal occupancy in
summer is 80% and winter 60%. The period of summer and winter is taken as 8 months and 4
months respectively. Assume 30 days in each month. Room rent of Premium room will be double
of Deluxe room. Hotel is expecting a profit of 20% on total revenue, total cost for the year is
2,66,11,200. Calculate the room rent to be charged for Premium room.
(a) ₹ 450 per room day (b) ₹ 900 per room day
(c) ₹ 380 per room day (d) ₹ 760 per room day

4. Find out the most appropriate unit cost from the following information of ZMD Transport
Services Ltd. dealing in goods carriage:
Total cost ₹ 5,25,000
Kms. Travelled 8,75,000
Tonnes carries 4,000
No. of Drivers 25
No. of trucks 20
Tonnes Km carried 6,55,000
(a) ₹ 0.6 (b) ₹ 0.8
(c) ₹ 21,000 (d) ₹ 131.25

5. A truck carrying 10 tons of goods over 200 kilometres per day for 26 days in a month. The ton
kms applicable is -
(a) 52,000 (b) 20,000
(c) 5200 (d) 260

90 CA/CS Nimeet Piti | | |

6. Parth Ltd. operates in insurance business. Previous Year, the company launched a new term insurance
policy called 'Max Jivan' and incurred the following expenditure throughout the year:
Particulars Amount in (₹)
Claim management cost 52,82,000
Facilities cost 6,49,82,500
Employees cost 2,25,18,000
Cost of marketing of the policy 19,30,71,000
Policy development cost 4,86,50,000
Policy issuance cost 4,10,05,000
Policy servicing cost 13,40,65,500
Sales support expenses 4,44,80,000
Office administration cost 6,67,20,000
I.T. Cost 30,71,90,000
Postage and logistics 4,50,36,000
You are required to ASCERTAIN the cost of the policy 'Max Jivan' segregated into four main
activities namely (a) Marketing and Sales support (b) Operations (c) I.T. Cost and (d) Support
functions.
(a) Marketing and Sales support– ₹23,75,51,000, Operations– ₹22,90,02,500,I.T. Cost–
₹30,71,90,000 and Support functions– ₹19,92,56,500
(b) Marketing and Sales support– ₹28,62,01,000, Operations– ₹22,53,88,500, I.T. Cost–
₹30,71,90,000 and Support functions– ₹15,42,20,500
(c) Marketing and Sales support– ₹28,62,01,000, Operations– ₹18,03,52,500, I.T. Cost–
₹30,71,90,000 and Support functions– ₹19,92,56,500
(d) Marketing and Sales support– ₹24,17,21,000, Operations– ₹22,48,32,500, I.T. Cost–
₹30,71,90,000 and Support functions– ₹19,92,56,500

7. A LMV Pvt. Ltd, operates cab/ car rental service in Delhi/NCR. It provides its service to the
offices of Noida, Gurugram and Faridabad. At present it operates CNG fuelled cars but it is also
considering to upgrade these into Electric vehicle (EV). The following details related with the
owning of CNG & EV propelled cars are as tabulated below:
Particulars CNG Car EV Car
Car purchase price (₹) 9,20,000 15,20,000
Govt. subsidy on purchase of car (₹) -- 1,50,000
Life of the car 15 years 10 years
Residual value (₹) 95,000 1,70,000
Mileage 20 km/kg 240 km per charge
Electricity consumption per Full charge -- 30 Kwh
CNG cost per Kg (₹) 60 --
Power cost per Kwh (₹) -- 7.60

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Annual Maintenance cost (₹) 8,000 5,200
Annual insurance cost (₹) 7,600 14,600
Tyre replacement cost in every 5 -year (₹) 16,000 16,000
Battery replacement cost in every 8-year (₹) 12,000 5,40,000

Apart from the above, the following are the additional information:
Particulars
Average distance covered by a car in a month 1,500 km
Driver’s salary (₹) 20,000 p.m
Garage rent per car (₹) 4,500 p.m
Share of Office & Administration cost per car (₹) 1,500 p.m

You have been approached by the management of A LMV Pvt. Ltd. for consultation on the two
options of operating the cab service. The expected questions that may be asked by the
management are as follows:

1. What would be the depreciable value of CNG Car and EV Car respectively?
(a) ₹ 13,50,000 and ₹ 14,40,000
(b) ₹ 15,20,000 and ₹ 8,25,000
(c) ₹ 8,25,000 and ₹ 14,40,000
(d) ₹ 8,25,000 and ₹12,00,000

2. What would be the monthly cost of fuel and electricity for an CNG and EV car respectively?
(a) ₹ 4,500 and ₹ 1,425 (b) ₹ 1,500 and ₹ 4,500
(c) ₹1,525 and ₹ 1,450 (d) ₹ 1,525 and ₹ 1,425

3. What would be the total cost to be incurred for replacement of tyres for CNG and EV car
respectively?
(a) ₹ 222.22 and ₹ 333.33 (b) ₹ 177.78 and ₹ 133.33
(c) ₹ 155.55 and ₹ 133.33 (d) ₹ 177.78 and ₹ 111.11

4. What would be the total cost to be incurred for replacement of battery for CNG and EV car
respectively?
(a) ₹ 5,40,000 and ₹ 12,000 (b) ₹ 12,000 and ₹ 5,40,000
(c) ₹ 2,00,000 and ₹ 12,000 (d) ₹ 1,00,000 and ₹2,00,000

5. What would be the operating cost of vehicle per month per car for both CNG & EV options?
(a) ₹ 36,627.78 and ₹ 43,708.33 (b) ₹ 36,627.78 and ₹ 48,523.26
(c) ₹ 48,523.26 and ₹ 28,510.29 (d) ₹ 48,523.26 and ₹ 28,510.29

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1. A truck driver, named Raju, owns a truck which can carry 5 tonne of material at a time. Raju has no
other truck and he has listed himself with various carriage services agencies, to offer his services.
He gets his work from these agencies and they pay him as per the load and the distance. Raju has
one condition that he must be paid for at least 75% of his total capacity. Raju charges freight at ₹
10 per tonne-km.
He received a work contract, from one of these agencies, where he has to take 4 tonne from Delhi
in the morning and drop it off at Chandigarh. After that he will move to Ludhiana, where he again
loads 3 tonne and come back to Delhi by evening. This contract is for nearly 3 months.

Raju is excited to accept the order but it is not physically possible for Raju to complete this project
alone. He decides to hire a helper cum driver who will assist him in this work contract and will also
drive in turns with Raju. Thus, such a long contract will be managed comfortably. This helper will
take ₹ 15,000 per month.
The contract will start from 15th June, 2024 and will run till 14th September, 2024. Throughout
this time period there are only 2 days holidays, both falling in August (1 for Independence Day and
1 for Raksha Bandhan).

Some information about the Truck and its associated costs:

➔ Truck was purchased on 1st April, 2021 by taking a loan of ₹ 20,00,000 @ 10% p.a. from Punjab
national bank for 5 years. Raju mortgaged jewellery of his wife to get this loan.
➔ Every year-end he has to pay ₹ 5,27,595 as instalment.
➔ Scrap value after 10 years is expected to be ₹ 500,000.
➔ Depreciation is charged on straight-line method.
➔ Services and maintenance charges each month is ₹ 80,000.
➔ Truck runs on diesel and its running average is 8kms/ litre.
➔ Diesel cost per litre:
June 80.30
July 80.50
August 81.25
September 80.90

1. What would be the amount of profit Raju would have earned if he had no minimum charges
limit of 75% of total capacity on absolute Tonne-km basis? (If the vehicle runs empty then he
would only charge for Diesel expenses).
(a) 3,34,249 (b) 4,43,249
(c) 5,96,977 (d) 4,34,249

2. If payment was made on commercial Tonne-km basis and Raju had no minimum charges limit
of 75%, how much he would have lost due to no minimum requirement?

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 (a) ₹ 6,37,500 (b) ₹ 5,93,750
(c) ₹ 4,92,438 (d) ₹ 3,91,126

3. What should be the minimum amount charged on basis of absolute Tonne-km if Raju wants to
earn ₹ 2,70,000?
(a) ₹ 4.58 (b) ₹ 6.13
(c) ₹ 8.39 (d) ₹ 3.21

4. Choose the correct amount of depreciation and interest that should be charged to this work
contract.
(a) 56,983 & 22,588 (b) 36,986 & 22,578
(c) 63,963 & 12,568 (d) 63,953 & 12,558

5. What is the profit as per current rate charged by Raju? (Use absolute Tonne-Km).
(a) 7,34,249 (b) 9,44,863
(c) 5,96,977 (d) 4,34,249

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 ANSWERS
1. (a) ₹ 0.0017

Cost per rupee of insured value

Total Cost
=
Total Insured Value

1.6cr
=
920cr.

= ₹ 0.0017

2. (a) 21,60,000

20kms x 40 pass. X 90% x 2 x 10 x 25 x 12 = 43,20,000 one way trips days buses

(b) ₹ 900 per room day

200 rooms

Summer Winter
8 months/240 days 4 months/120 days
Occupancy : 80% occupancy: 60%
Deluxe: 120 rooms × 80% = 96 rooms Deluxe: 120 rooms × 60% = 72 rooms
Premium: 80 rooms × 807. = 64 rooms Premium: 80 rooms × 60% = 48 rooms

Total room days:

Summer : Deluxe : 96 rooms × 240 days = 23,040 room days
Winter : Deluxe : 72 rooms × 120 day = 8,640 room days
31,680 room days
Summer: Premium : 64 rooms × 240 days = 15,360 room days
Winter: Premium: 48 rooms × 120days = 5,760 room days
21,120 room days

Total cost 80 2,66,11,200

+ Profit 20 66,52,800
Takings 100 3,32,64,000

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 Let the room rent per day of a deluxe room be 'x'

 the room rent per day of a premium room be '2x'

Thus
31,680(x) + 21,120 (2x) = 3,32,64,000

73920x = 3,32,64,000
 x = 450
 Rent of a premium room = 2x = 2 (450) = 900 per room day

5. (b) 0.8
Total cost ₹ 5,25,000

Tonne kms ₹ 6,55,000

Cost per tonne-km ₹ 5,25,000 ₹ 0.801

6,55,000

6. (a) 52,000
10tons × 200 kms × 26 days = 52000 ton-kms

7. (b) Marketing and Sales support– ₹28,62,01,000, Operations– ₹22,53,88,500, I.T. Cost–
₹30,71,90,000 and Support functions– ₹15,42,20,500

Particulars Amount (₹) Amount (₹)

Marketing and Sales support:

a. Policy development cost 4,86,50,000

Cost of marketing 19,30,71,000

Sales support expenses 4,44,80,000

28,62,01,000

Operations:

b. Policy issuance cost 4,10,05,000

Policy servicing cost 13,40,65,500

Claim management cost 5,28,20,000

18,03,52,500

c. IT Cost 30,71,90,000

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 Support functions

d. Postage-and-logistics 4,50,36,000

Facilities cost 6,49,82,500

Employees cost 2,25,18,000

Office administration cost 6,67,20,000

19,92,56,500

Total Cost 97,30,00,000

7. 1.(a) ₹ 4,500 and ₹ 1,425

Depreciable value: CNG = Purchase price - Residual value
= 920,000 - 95000
= 825000.

Depreciable value: EV = Purchase price - Govt. subsidy – Residual value

= 1520,000 - 150,000 - 170,000
= 12,00,000.

2. (a) 4500 & 1425

CNG : 1kg = 20 km EV : 30 kwh = 240 kms

1500 km 1500 km

3. (b) 177.78 and 133.33

Cost of tyres CNG EV
Life 15 years 10 years
Replacement interval 5 years 5 years

No. of replacements required 2 times 1 time

( first set of tyres will be replaced after 5 years)
Cost per set of tyres ₹ 16,000 ₹ 16,000

Total replacement cost ₹ 32,000 ₹ 16,000

 total Life 15 years 10 years
Cost per year ₹ 2133.33 ₹ 1,600
Cost per month ₹ 177.78 ₹ 133.33

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 4. (b) ₹ 66.66 and ₹ 4,500

CNG EV

Life 15 years 10 years

Replacement interval 8 years 8 years

No. of replacements required. 1 time 1 time

( first battery will be replaced after 8 years)

Cost of battery for each replacement ₹ 12,000 ₹ 540,000

Total cost (cost × no. of times replaced) ₹ 12,000 ₹ 54,0000

 Cost per year (Total Cost  Life) ₹ 800 ₹ 54,000

(12,000  15 years) (5,40,000  10 years)

 Cost per month ₹ 66.66 ₹ 4,500

8. 1. C. 5,96,977
Profit if no minimum charges are there, on absolute tonne basis, but he will charge for diesel petrol
when running empty Absolute tonne-kms: (250 kms x 4 tonnes + 150 kms x 3 tonnes) x 90 days =
1,30,500 tonne-kms Vacant moving (Chandigarh to Ludhiana) = 100kms x 90 days = 9,000 kms
Charges for vacant running:
Monthly Charges Calculation
Calculation (₹)
June (80.30×16×100)/8 16,060
July (80.50×31×100)/8 31,194
August (81.25×29×100)/8 29,453
September (80.90×14×100)/8 14,158
Total Charges 90,864

Profit Calculation
Description (₹)
Total revenue (1,30,500×10) 13,05,000
Add: diesel recovery for vacant running 90,864
Less: service & maintenance (80,000×3) (2,40,000)
Less: salary (15,000×3) -45,000
Less: diesel cost (4,54,323)
Less: interest -22,578
Less: depreciation -36,986
Profit 5,96,977

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Bifurcation of principal and interest
Years Calculation of Interest Principal Loan
interest (₹) (₹) repayment (₹) balance (₹)
0 - - - 20,00,000
1 20,00,000×10% 2,00,000 3,27,595 16,72,405
2 16,72,405×10% 1,67,241 3,60,354 13,12,051
3 13,12,051×10% 1,31,205 3,96,390 9,15,661
4 9,15,661×10% 91,566 4,36,029 4,79,632
5 4,79,632×10% 47,963 4,79,632 -

Interest allocated to this job = 91,566 x 90 / 365 = 22,578

Depreciation = 20,00,000 - 5,00,000/10 x 90/365 = 36,986

Diesel expenses:
June (80.30 x 16 x 500)/8 80,300
July (80.50 x 31 x 500)/8 1,55,969
August (81.25 x 29 x 500)/8 1,47,266
September (80.90 x 14 x 500)/8 70,788
Total diesel expenses 4,54,322

2. A. ₹ 6,37,500
With minimum limit (₹) Without minimum limit (₹)
Commercial tonne kms 3.75 x 500 x 90 ((4+0+3)/3) x 500 x 90
= 1,68,750 = 1,05,000
revenue 1,68,750 x 10 1,05,000 x 10
= 16,87,500 = 10,50,000
Less: costs (7,98,887) (7,98,887)
Profit/(loss) 8.88,613 2,51,113
Loss arising due to no minimum limit = 8,88,613-2,51,113 = 6,37,500

3. B. ₹ 6.13
Total Revenue = Cost + Profit = 7,98,887+ 2,70,000 = ₹ 10,68,887 Absolute Tonne-Kms = 1,74,375
Rate = 10,68,887/1,74,375 = ₹ 6.13

4. B. 36,986 & 22,578

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5. B. 9,44,863
Profit at current rate (based on minimum charges of 75%) Absolute tonne-kms: (250 kms x 4
tonnes + 100 kms x 3.75 tonnes + 150 kms x 3.75 tonnes) x 90 days = 1,74,375 tonne-kms
Total revenue (1,74,375 x 10) 17,43,750
Less: service & maintenance (80,000 x 3) (2,40,000)
Less: salary (15,000 x 3) (45,000)
Less: diesel cost (4,54,323)
Less: interest (22,578)
Less: depreciation (36,986)
Profit 9,44,863

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 13 Standard Costing

1. In a period, 5640 kg of material were used at a total standard cost of ₹ 23,124. The material
usage variance was ₹ 246 adverse. What was the standard allowed weight of material for the
period?
(a) 5580 (b) 5520
(c) 5850 (d) 5250

2. The Budgeted fixed overhead for the month of August was ₹75,00,000 with the units of production
estimated at 15,000. However, the actual units produced is 15,600 with no Fixed overhead cost
variance. CALCULATE the actual fixed overhead incurred.
(A) ₹75,00,000
(B) ₹72,11,538
(C) ₹78,00,000
(D) ₹79,00,000

3. A furniture company uses premium wood for sofa. Standard quantity of premium wood per sofa is
5 sq. ft. Standard price per sq. ft. of premium wood is ₹ 10. Actual production of sofa is 1,000.
Premium wood actually used is 5,300 sq. ft. Actual purchase price of premium wood per sq. ft. is
₹ 10. What is material cost variance?
(a) ₹ 3,000 (A) (b) ₹ 4,300 (A)
(c) ₹ 7,300 (A) (d) ₹ 5,300 (F)

4. The wages budget for the last period was based on a standard repair time of 30 minutes per unit
and a standard wage rate of ₹ 50 per hour. The actual data for the last period are as follows:
Number of units = 30,000
Labour rate variance = 7,500 (A)
Labour efficiency variance = Nil
From the information find out the actual rate of wages per unit
(a) ₹ 50 (b) ₹ 25.50
(c) ₹ 50.50 (d) ₹ 25.25

5. The standard and actual figures of a firm are as under:

Standard time for the job 1,000 hours
Standard rate per hour ₹ 0.50
Actual time taken 800 hours
Actual wages paid ` 360
Compute
(i) What is the Rate variance

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 (ii) Efficiency variance
(iii) Total labour cost variance

6. The Cost Accountant of AQ Limited has provided the following information for investigation of
variances:
Amount
Material Cost Variance ₹ 4,220 (F)
Material Usage Variance ₹ 18,540 (A)
Material Yield Variance ₹ 8,390 (F)
The Management Accountant is not able to comment on the reason of variances as information is
not sufficient and seeks your help to find out the correct amount of Material Price Variance and
Material Mix Variance. What is the correct amount of Material Price Variance (MPV) and Material
Mix Variance (MMV) ?
(A) MPV ₹ 24,880 (A) and MMV ₹ 27,440 (F)
(B) MPV ₹ 14,320 (A) and MMV ₹ 10,150 (F)
(C) MPV ₹ 14,320 (F) and MMV ₹ 10,150 (A)
(D) MPV ₹ 22,760 (F) and MMV ₹ 26,930 (A)

7. A company provides the following information:

• Standard price per unit of raw material = ` 5.50
• Actual quantity of raw materials purchased = 3,000 kg
• Standard quantity for actual production = 3,200 kg
• Material price variance (favourable) = ` 600

What is the actual price per unit of raw materials?

(a) ` 5.70
(b) ` 5.30
(c) ` 5.50
(d) ` 5.00

8.
ABC Pvt Ltd is engaged in the manufacture of a Product Q. The product has the following standard
production requirements determined by the technical team of the company post satisfactory
completion of test run.
Raw Material Z - 2 units @ ₹ 2 per unit
Skilled labour of - 2.5 hours@ ` 5 per hour
Fixed Overheads - ₹7.5 per unit
The input of Raw material Z has a yield of 80% every time when infused into production. The
actual quantity of Raw material Z consumed for production during the year was 24,000 units. The

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 Usage variance of Material Z was 2,000 Favourable. Further the actual amount of material cost
for the material consumed amounted to ₹ 45,000.
During the said year, the actual working hours were 30,000 for which the labour cost paid by the
company amounted to ₹1,20,000. The idle time variance amounted to 10,000 Adverse.
The actual fixed overheads incurred for the year amounted to ₹ 1,50,000 and the expenditure
variance was ₹ 25,000 Favourable.

In the context of the above, the following needs to be determined:

(i) The Actual output of Product Q produced during the year is:
(a) 10,000 units (b) 12,500 units
(c) 25,000 units (d) 15,000 units

(ii) The Material price and material cost variance are:

(a) Price variance - 3,000 Adverse, Cost Variance - 5,000 Adverse
(b) Price variance Favourable 3,000 Favourable, Cost Variance 5,000
(c) Price variance Adverse 3,000 Favourable, Cost Variance 8,000
(d) Price variance Favourable 5,000 Adverse, Cost Variance 3,000

(iii) The Standard Hours, Net Actual hours and the idle time are:
(a) Standard Hours 27,500 Net Actual Hours 28,000 hours Idle Time 2,000 hours
(b) Standard Hours - 22,500 Net Actual Hours 28,500 hours Idle Time 1,500 hours
(c) Standard Hours 24,000 Net Actual Hours 29,000 hours Idle Time 1,000 hours
(d) Standard Hours - 25,000 hours Net Actual Hours -28,000 hours Idle Time - 2,000 hours

(iv) Labour Efficiency variance and Labour rate variance are:

(a) Labour Efficiency Variance - 30,000 Favourable Labour rate Variance - 25,000 Adverse
(b) Labour Efficiency Variance - 25,000 Favourable, Labour rate Variance 30,000 Adverse
(c) Labour Efficiency Variance - 25,000 Adverse, Labour rate Variance 30,000 Favourable
(d) Labour Efficiency Variance - 30,000 Adverse Labour rate Variance - 25,000 Favourable

(v) Fixed Overhead volume variance is:

(a) Fixed Overhead volume variance - 1,00,000 Favourable
(b) Fixed Overhead volume variance - 50,000 Adverse
(c) Fixed Overhead volume variance - 1,00,000 Adverse
(d) Fixed Overhead volume variance - 50,000 Favourable

9.
K Ltd. is a manufacturer of a single product A. 8,000 units of the product A has been produced
in the month of March 2024. At the beginning of the year a total 1,20,000 units of the product-

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 A has been planned for production. The cost department has provided the following estimates of
overheads:
Fixed ₹ 12,00,000 Variable ₹ 6,00,000
Semi-Variable ₹ 1,80,000
Semi-variable charges are considered to include 60 per cent expenses of fixed nature and 40 per
cent of variable character
The records of the production department shows that the company could have operated for 20
days but there was a festival holiday during the month.

The actual cost data for the month of March 2024 are as follows:
Fixed ₹ 1,19,000 Variable ₹ 48,000
Semi-Variable ₹ 19,200

The cost department of the company is now preparing a cost variance report for managerial
information and action. You being an accounts officer of the company are asked to calculate the
following information for preparation of the variance report:
i. What is the amount of variable overhead cost variance for the month of March 2024:
(a) ₹ 10,200 (A) (b) ₹ 10,400 (A)
(c) ₹ 10,800 (A) (d) ₹ 10,880 (A)

ii. What is the amount of fixed overhead volume variance for the month of March 2024:
(a) ₹ 9,000 (F) (b) ₹ 9,000 (A)
(c) ₹21,800 (A) (d) ₹ 11,000 (A)

iii. What is the amount of fixed overhead expenditure variance for the month of March 2024:
(a) ₹21,520 (A) (b) ₹ 21,500 (A)
(c) ₹21,400 (A) (d) ₹ 21,480 (A)

iv. What is the amount of fixed overhead calendar variance for the month of March 2024:
(a) ₹ 5,400 (A) (b) ₹ 5,450 (A)
(c) ₹ 5,480 (A) (d) ₹ 5.420 (A)

v. What is the amount of fixed overhead cost variance for the month of March 2024:
(a) ₹ 43,320 (A) (b) ₹ 43,300 (A)
(c) ₹ 43,200 (A) (d) ₹ 43,380 (A)

10. Following is the data of BROS Ltd relating to standard and actual labour
• Standard Data
- Grade 1: Takes 1 hr p.u. @` 20 per hour
- Grade 2: Takes 0.5 hr p.u @` 10 per hour

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 • Actual Data
- Production: 1500 units
- Grade 1: Took 1750 hrs costing ` 31500
- Grade 2: Took 600 hrs costing ` 6600
• Actual and expected yield percentage is the same
• Idle time: G1 = 50 hrs, G2 = 50 hrs

1. Calculate Total Labour Idle Time Variance:

A) 1500 unfavorable B) 1500 favorable
C) 1450 unfavorable D) 1450 favorable

2. Calculate Total Labour Efficiency Variance

A) 4000 unfavorable B) 4000 Favorable
C) 3600 unfavorable D) Nil

3. Calculate labour rate Variance of Grade 2 labour

A) 600 favorable B) 600 unfavorable
C) 2900 favorable D) 750 unfavorable

4. Calculate labour Time Variance of Grade 1 labour

A) 3350 unfavorable B) 3350 favorable
C) 5000 unfavorable D) 2000 favorable

11. A company manufactures a product with the following standard cost per unit:
• Direct Material: 5 kg @ ₹10 per kg
• Direct Labor: 2 hours @ ₹15 per hour
• Variable Overheads: 2 hours @ ₹8 per hour
The standard output is 1,000 units. The actual production was 900 units, with actual usage of
4,800 kg of material at ₹11 per kg, 1,850 labor hours at ₹16 per hour, and actual variable
overheads of ₹14,800.

1. What is the material price variance?

A) ₹ 4,800 favorable B) ₹ 4,800 unfavorable
C) ₹ 5,000 favorable D) ₹ 5,000 unfavorable

2. What is the labor efficiency variance?

A) ₹ 750 favorable B) ₹ 750 unfavorable
C) ₹ 800 favorable D) ₹ 800 unfavorable

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 3. What is the variable overhead expenditure variance?
A) ₹ 400 favorable B) ₹ 400 unfavorable
C) no variance D) ₹ 3,00 unfavorable

4. What is the total variable cost variance?

A) ₹10,800 favorable B) ₹11,100 unfavorable
C) ₹11,100 favorable D) ₹10,800 unfavorable

12. XYZ Manufacturing Ltd. produces kitchen appliances and implements a standard costing system to
monitor performance. The company has provided the following data for the month of September:
• Budgeted Output: 10,000 units
• Actual Output: 9,000 units
• Budgeted Hours: 20,000 hours
• Actual Hours Worked: 18,500 hours
• Standard Time per Unit: 2 hours
• Actual Time per Unit: 2.05 hours
• Standard Rate per Labor Hour: ₹25
• Actual Rate per Labor Hour: ₹28

XYZ Ltd. management is analysing these ratios to assess the company’s operational performance
for the month.
1. What is XYZ Ltd.'s Capacity Ratio for September?
(A) 0.925 (B) 0.900
(C) 0.9255 (D) 0.9257

2. Based on the information provided, what is XYZ Ltd.'s Efficiency Ratio?

(A) 0.9729 (B) 1.005
(C) 0.993 (D) 1.010

3. What is the Labor Rate Variance for XYZ Ltd. for the month of September?
(A) ₹ 55,500 Unfavorable (B) ₹ 64,750 Unfavorable
(C) ₹ 64,750 Favorable (D) ₹ 55,500 favorable

4. What is XYZ Ltd.'s Labor Efficiency Variance for September?

(A) ₹ 12,500 Unfavorable (B) ₹ 12,500 Favorable
(C) ₹ 37,500 Favorable (D) ₹ 37,500 Unfavorable

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13.
Hilfy textiles Ltd. has been a major player in the textile industry, producing high-quality polyester
mix cotton fabric. The production process is complex and involves multiple stages, including
spinning, weaving, quality control, and packaging. The company has been facing challenges in
controlling costs and maintaining profitability, mainly due to fluctuating material costs and labor
inefficiencies.
To address these challenges, the company's management has decided to implement a standard
costing system to better manage costs, set benchmarks, and identify variances. The goal is to
gain better control over production costs, improve budgeting accuracy, and enhance decision-
making.
Hilfy textiles Ltd. had prepared the following estimation for the month of April:

Quantity/Time Rate (`) Amount (`)

Cotton 8,000 m 50.00 4,00,000
Polyester 6,000 m 40.00 2,40,000
Skilled labour 1,000 hours 37.50 37,500
Unskilled labour 800 hours 22.00 17,600
Normal loss was expected to be 10% of total input materials and an idle labour time of 5% of
expected labour hours was also estimated.
At the end of the month the following information has been collected from the cost accounting
department:
The company has produced 14,800 m finished product by using the followings:
Quantity/Time Rate (`) Amount (`)
Cotton 9,000 m 48.00 4,32,000
Polyester 6,500 m 37.00 2,40,500
Skilled labour 1,200 hours 35.50 42,600
Unskilled labour 860 hours 23.00 19,780

On the basis of analysis of standard costing system, company's management wants to take actions
like supplier negotiation, process optimisation, employee training, etc.
Being the cost manager of the company, you are required to answer the following five
requirements of the management:

1. Compute Material mix variance and Material Yield Variance

(a) ` 1430 (A) & 43,200 (F) (b) ` 1430 (F) & 43,200 (F)
(c) ` 24,000 (A) & 37,500 (F) (d) ` 19,300 (A) & 37,500 (F)

2. Compute Material Price Variance for supplier negotiation

(a) 18,000 (A) (b)` 43,200 (F)
(c) 37,500 (A) (d) ` 37,500 (F)

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 3. Compute Material Cost Variance
(a) ` 32,500 (F) (b) ` 24,500 (A)
(c) ` 79,270 (F) (d) ` 79,270 (A)

4. Compute Labour Efficiency Variance and Labour Yield Variance.

(a) ` 940 (A) & 1,140 (A) (b) ` 2,424 (A) & 1,556 (A)
(c) ` 2,424 (A) & 1,556 (A) (d) ` 940 (A) & 1,140 (F)

14.
XYZ Manufacturing Ltd. is a mid-sized enterprise that has established a strong reputation in the
field of precision engineering. The company specializes in producing high-quality engineering
components that meet the stringent requirements of various industries including automotive,
aerospace, medical devices, and industrial machinery. With a commitment to precision and
excellence, XYZ Manufacturing Ltd. has positioned itself as a reliable supplier of critical
components that demand the highest levels of accuracy and durability.

To maintain stringent control over its production costs and enhance cost efficiency, XYZ
Manufacturing Ltd. operates under a standard costing system. This system plays a pivotal role in
the company's financial and operational management. Standard costing involves setting
predetermined costs for each production element, including materials, labor, and overheads.
These predetermined costs, known as standard costs, serve as benchmarks against which actual
production costs are measured.
Particulars Budgeted Data Actual Data
Units Produced 10,000 units 9,500 units
Fixed Overheads ` 20,00,000 ` 19,50,000 + ₹ 1,00,000 (additional quality control
cost for 1,000 units chosen on sample basis)
Hours Worked 15,000 hours 14,250 hours
Variable ` 50 per hour ` 50 per hour (first 10,000 hours) ` 60 per hour
Overhead Rate (additional hours)

Based on the given information, you are being required to answer the following questions
1. What is the Fixed Overhead Cost Variance for XYZ Manufacturing Ltd. in May 2024?
(a) ₹ 50,000 (A) (b) ₹ 1,00,000 (A)
(c) ₹ 1,50,000 (A) (d) ` 2,00,000 (A)

2. What is the Fixed Overhead Volume Variance for XYZ Manufacturing Ltd. in May 2024?
(a) ₹ 50,000 (F) (b)₹ 50,000 (A)
(c) ` 1,00,000 (F) (d) ₹ 1,00,000 (A)

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 3. What is the Variable Overhead Efficiency Variance for XYZ Manufacturing Ltd. in May 2024?
(a) ` 37,500 (A) (b) 42,500 (A)
(c) ₹ 0 (d) 25,000 (A)

4. What is the Variable Overhead Expenditure Variance for XYZ Manufacturing Ltd. in May 2024?
(a) ₹ 40,000 (A) (b) 42,500 (A)
(c)` 45,000 (A) (d) ₹ 45,030 (A)

5. What is the Fixed Overhead Expenditure Variance for XYZ Manufacturing Ltd. in May 2024?
(a) ₹ 50,000 (F) (b) ₹ 50,000 (A)
(c) ₹ 1,00,000 (F) (d) ₹ 1,00,000 (A)

15.
A garment manufacturer has been producing and selling T-shirts exclusively for Indian market.
His T-shirts are made of a specific material which is eco-friendly. It means that T-shirts are
bio-degradable in soil after they become unsuitable for use.
This invention has been applauded throughout the country. Owner, Vikas, registered for the
patent rights for his invention so that no one else could use it.
Vikas feels that this invention will also be liked in foreign markets, and thus plans to expand his
business outside India. He feels that US market is the first foreign market he should tap into.
Direct material 90
Direct labour 60
Special service 80
(Used in T-shirt making, 50% fixed)
Fixed overhead 50
Administration overhead (fixed) 20
Total cost per T-shirt 300
(+) Profit margin 200
Selling price in India 500

There is no limitation of any resources in India. Vikas is able to sell 80,000 T-shirts each year.
He is currently working at 80% of his total capacity.
After searching for potential customers in US, Vikas received an inquiry for 30,000 units from
a wholesale distributor in California. As per the inquiry, order will be placed if price per T-shirt
is reasonable and the order has to be satisfied in full.
Vikas decided to send a quote and the order was placed by the foreign client, on the same day.
Vikas, without a second thought accepted the order, but did not feel the need to extend the
manufacturing capacity; therefore, he decided forgo a few Indian clients.

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This foreign order also required special packaging. It is spent at 20% of the total prime cost per
T-shirt. The production was done quickly and foreign consignment was transported to custom port
via services from a carriage agency. It charged ₹ 80,000 for 1 truck, whose capacity was 500 kg,
to transport whole of the consignment. Truck was 20% vacant after loading the consignment.
Bill of lading was filed and a professional fee of ₹ 25,000 for filing this was paid to a Chartered
accountant. Custom port also charged ₹ 80 per kg per day to handle the material, storing it in
warehouse, and for loading the goods on ship.

The shipping company, which was booked by Vikas for taking the consignment to US, got delayed
due to bad weather. Stock was held at port for 5 days and on 6th day it was loaded on ship.
Shipping company charged ₹ 2,800/10kg of goods. Insurance was charged flat at ₹ 1,11,000.
There is no custom duty on such exports.

1. Vikas had sufficient funds in his hands but he still raised a short-term working capital loan @
6.5% p.a. for the satisfaction of this foreign order because he found a onetime investment
opportunity which was giving him 9.25% returns. Foreign order was accepted on 1st June and
loan was taken on the same day. Repayment of the loan will be made on 1st September.
Calculate net cash outflow due to this export order. Which of the following is correct?
(a) ₹ 73,91,000 (b) ₹ 75,47,750
(c) ₹ 74,76,500 (d) ₹ 71,06,000

2. What would have been the minimum price that Vikas could have quoted per T-shirt in US
dollars? (exchange rate on 1st June, $1 = ₹ 83.86)
(a) $ 4.23 (b) $ 4.20
(c) $ 4.17 (d) $ 4.05

3. Payment from foreign client was received on 8th October when exchange rate was ₹ 86 for
each US $. Calculate the profit earned from this export order if actual quoted price was
$4.90 per T-shirt. Select the correct amongst following:

(a) ₹ 40,65,500 (b) ₹ 41,51,000

(c) ₹ 39,94,250 (d) ₹ 44,36,000

4. What is the net cash Inflow from this export order?

(a) ₹ 55,36,000 (b) ₹ 51,65,500
(c) ₹ 52,51,000 (d) ₹ 50,94,250

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 5. What is the Incremental benefit from this export order?
(a) ₹ 19,94,250 (b) ₹ 21,51,000
(c) ₹ 20,65,500 (d) ₹ 24,36,000

16.
ALZO Toys Ltd. is an exciting new player in the toy manufacturing industry, founded with a
passion for creating high-quality, engaging, and educational toys. The company aims to make a
positive impact on the industry and also on the development of young minds through imaginative
play.
The following statement provides a comprehensive analysis of the various cost variances for a
particular period, outlining the differences between the expected costs and the actual
expenditures incurred.
Cost variances (₹)
Direct material price 25,000F
Direct material usage 3,750A
Direct labour rate 5,000A
Direct labour efficiency 3,750A
Variable overhead expenditure 15,000A
Variable overhead efficiency 1,875A
Fixed overhead expenditure 62,500F

The budget for the same period reflected the following data:
Production volume 7,500 units
Direct materials purchased 3,750kg
Direct materials used 3,750kg
Direct material cost ₹ 1,12,500
Direct labour hours 5,625 hours
Direct labour cost ₹ 1,12,500
Variable overhead cost ₹ 56,250
Fixed overhead cost ₹ 1,12,500
Some other information relating to the same period is provided below:
(i) Stocks of raw materials and finished goods are valued at a predetermined standard cost for
easier cost comparison and reporting.
(ii) The actual number of units produced was 7,750.
(iii) The direct materials purchased were 5,000 kg.

From the information given above, you are required to FIGURE OUT the following in actual:
1. Quantity of materials used and direct material cost-
(a) 3,875 kg and ` 1,50,000
(b) 3,875 kg and ` 1,25,000

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(c) 4,000 kg and ` 1,25,000
(d) 4,000 kg and ` 1,50,000

2. Direct labour hours-

(a) 7,937.50 hours
(b) 6,000 hours
(c) 5,812.50 hours
(d) 5,000 hours

3. Direct labour cost-

(a) ` 1,16,250
(b) ` 1,25,000
(c) ` 1,55,000
(d) ` 1,63,750

4. Variable overhead cost-

(a) ` 75,000
(b) ` 73,125
(c) ` 60,000
(d) ` 58,125

5. Fixed overhead cost-

(a) ` 1,75,000
(b) ` 1,12,500
(c) ` 62,500
(d) ` 50,000

112 CA/CS Nimeet Piti | | |

 ANSWERS

1. (a) 5580
The usage must have been higher than standard because the usage variance is adverse.
Usage variance is equal to the excess usage multiplied by the standard price per kg of material.
` 23,124
Standard price per kilogram of material : = ` 4.10
` 5640
` 246
Number of kilogram excess usage : = 60kg
` 4.1
Standard usage : 5640 kg – 60 kg = 5580 kg.

2. (A) ₹ 75,00,000.
Fixed Overhead Cost Variance=Budgeted Fixed Overhead−Actual Fixed Overhead Incurred
Given in the problem:
Budgeted Fixed Overhead = ₹ 75,00,000
Fixed Overhead Cost Variance = ₹ 0 (since there is "no Fixed overhead cost variance")
Substituting the values:
₹ 0=₹ 75,00,000−Actual Fixed Overhead Incurred
Actual Fixed Overhead Incurred=₹ 75,00,000
The actual units produced (15,600) and budgeted units (15,000) are irrelevant for the calculation
of the total Fixed Overhead Cost Variance.

3. (a) 3000A
1 sofa - 5 [Link]

1000 sofa 5000 [Link].

Actual Output - 100 sofa.
Standard Actual
Qty. rate Amt Qty. rate Amt
5000 10 50,000 5300 10 53,000
Mat. cost variance = (Std. cost - Actual cost)
= (50,000 - 53,000)
= 3000A

4. (c) ` 50.50
1 unit - 30 mins

30,000 units 90,000 mins or 15,000 hrs.

Actual Output : 30,000 units

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 Standard Actual
Hours rate Amt. Hours rate Amt
15000 10 75,000 15000
 The efficiency variable is NIL, the standard & Actual hours are NIL.
Labour rate variance = (std rate – Actual rate) Actual hours
7500A = (50 - AR) 15000
7500A
= 50 – AR
15000
0.5A = 50 – AR
 AR = 50.5**
** The rate variance is (A), the actual rate is more than the standard rate.

5.
Standard labour cost ₹
(1,000 hours × R` 0.50) 500
Actual wages paid 360
Actual rate per hour: ` 360/800 hours = ` 0.45
Calculation of Variances
(i) Rate variance = Actual time (Standard rate – Actual rate)
= 800 hours (` 0.50 – ` 0.45) = ` 40 (F)
(ii) Efficiency variance = Standard rate per hour (Standard time – Actual time)
= ` 0.50 (1,000 hrs. – 800 hrs.) = ` 100 (F)

(iii) Total labour cost variance= Standard labour cost – Actual labour cost
= (Standard rate × standard time) – (Actual rate × Actual time)
= (` 50 × 1,000 hrs.) – (` 45 × 800 hrs.)
= ` 500 – ` 360
= ` 140(F).

6.

(D) MPV ₹ 22,760 (F) and MMV ₹ 26,930 (A)

Choice 'D' is correct as--
Material Cost Variance (MCV) = 4,220 (F)
= Material Price Variance (MPV) + Material Usage Variance (MUV)
Given, MUV = 18,540 (A)
So, MPV = 4,220 (F) – 18,540 (A) = 22,760 (F)
Also, Material Usage Variance (MUV) = Material Mix Variance (MMV) + Material Yield Variance
(MYV)
18,540 (A) = MMV + 8,390 (F)
So, MMV = 26,930 (A)

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 Hence, Material Price Variance = ₹ 22,760 (F) and Material Mix Variance = ₹ 26,930 (A).

7.
(b) ` 5.30 Material Price Variance = (Standard Price - Actual Price) x Actual Quantity
600 = (5.50 - AP) x 3,000
AP = 5.50 - 0.20 = `5.3

8. (i) (a) 10,000 units

Usage variance of Material Z = 2,000 F
Usage Variance = SQ × SP – AQ × SP
SP =`2
AQ = 24, 000 units
2 (SQ – 24,000) = 2,000
2SQ = 50,000
Therefore SQ = 25000
No of units of Input required per output = 2
Yield of input = 80%
 25000 
=   × 80% =10,000 units.
 2 
(ii) (b) Price variance - 3,000 Favourable,
Cost Variance 5,000 Favourable
Price variance = AQ(SP - AP)
24000(2 - 1.875) = 3,000 Favourable.
Cost variance = SQ × SP – AQ × AP
= 50000 - 45000 = 5000 Favourable.

(iii) (d) Standard Hours - 25,000 hours Net Actual Hours -28,000 hours Idle Time - 2,000
hours
Standard Hours - 25,000 hours Net Actual Hours - 28,000 hours
Idle Time - 2,000 hours.
Actual output = 10,000 units
Standard hours per unit = 2.5
Therefore standard hours = 10,000 x 2.5 = 25,000 hours.
Idle time variance = SR × (Net AH - AH)
5 x (Net AH - 30,000) = 10,000 Adverse
5 Net AH - 1,50,000 = - 10000

5 Net AH = 1,40,000
Net AH = 28,000 hours
Idle time = 2,000 hours
115 CA/CS Nimeet Piti | | |
 (iv) (c) Labour Efficiency Variance - 25,000 Adverse, Labour rate Variance 30,000
Favourable
Labour Efficiency Variance – 25,000 Adverse,
Labour rate Variance - 30,000 Favourable
Efficiency Variance = SR × (SH - AH)
= 5 × (25,000 – 30,000)
= 25,000 Adverse
Rate Variance = AH × (SR - AR)
 1,20,000 
= 30,000 (5 - 4)  
 30,000 
= 30,000 Favourable.

(v) (c) Fixed Overhead Volume variance – 10,000 Adverse

Overhead Volume variance = Actual Output × SR per unit - Budgeted FOH
Budgeted FOH = Actual FOH (+ / -) Expenditure variance

1,50,000 + 25,000 = 1,75,000

AO × SR = 10,000 × 7.5 = 75,000
Therefore volume variance = 75,000 – 1,75,000
= 1,00,000 Adverse.

9. Units p.a : 120,000 Fixed cost p.a. 12,00,000

Units P.m : 10,000 + FC of Semi-Var O/H 1,08,000
(180,000 × 60%) 13,08,000
→ 109000 pm

Actual Amt
Fixed - 119,000
+ FC of S. VOH O/H 11,520
(19200 × 60%) 130,520

Budget Actual AB rates

109000
D 20 19 = 5450/days
20
109000
H - - = 10.9/unit
10000
U 10,000 8000
A 109000 130,520

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FOH Cost: (Absorbed – Actual) (8000 × 10.9) – 130,520
87200 – 130,520 = 43,320A

FOH expenditure variance FOH volume variance

(109000 – 130,520) (1000 - 8000)10.9
21,520A: 21800A

Calendar variance
(20 - 19) 5450
5450A

Actual amt
VOH P.a. 600,00 Variable 48000
VOH of SVOH 72,000 V of SVOH 7680
(180,000 × 40%) 672000 – 120,000 units (192000 × 40%)
 VOH Pu : 5.6 Pu 55680

Actual O/T – 8000 units

Std Actual
U R A U R A
8000 5% 44800 8000 6.96 55680

VOH Cost/VOH Exp Var: 44800 – 55680 = 10880A

O/H Cost : VOH cost + FOH Cost
10880A + 34320 A
= 45200A

i) (c) 10,880(A)
refer working above
ii) (c) 21,800(a)
refer working above
iii) (a) 21,520(A)
refer working above
iv) (b) 5,450(A)
refer working above
v) (a) 43,320(A)
refer working above

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10. G1: 1 Unit – 1 hr G2: 1 Unit – 0.5/hr

1500 units 1500 hrs 1500 units 750/hrs

Actual output – 1500 units
Standard Actual
Hrs. Rate Amount Hrs Rate Amount
1500 20 30,000 1750 18 31500
750 10 7500 600 11 6600
2250 16.66 37500 2350 38100

1.(A) 1500 unfavorable

Labour idle time variance = idle hrs × std rate
= G1 = 50 hrs × 20/hr = 1000A
= G2 = 50 hrs × 20/hr = 500A__
1500A
2.(d) Nil
Labour efficiency variance = (Total std. hrs – Total Actual hrs) wt Avg. std rate
= (2250 - 2250) 16.66
= NIL

Net off idle hrs (50 + 50) = 100 hrs

3.(b) 600 unfavorable

Labour rate variance = (std rate – Actual rate) Actual hours
G2 = (10 - 11) 600
= 600A

4.(c) 5000 unfavorable

Labour time variance = (Std rate – Actual hrs) Std rate
G1 = (1500 - 1750) 20
= 5000S

11. 1(b) ₹ 4,800 unfavorable

Material price variance = (Std. rate - Actual rate) Actual Qty. (10-11)4800 = 4800
= (10 -11)4800
= 4800A

2.(b) ₹ 750 unfavorable

Labour Efficiency variance = (Std hrs - Actual hrs.) Std. rate

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 = [(900 units x 2hrs) - 1850] 15
= 750A

3. (d) ₹ 3,00 unfavorable

Variable O/M Cost variance = (Std rate - Actual rate) Actual hrs
  14800  
= 8 -    1850 = NIL
  1850  

4.(d) ₹10,800 unfavorable

Total variable Cost variance:
Standard Actual
Mat. Cost 45000 52800
[5 kgs pu. × 10 /kg] 900 units [4800 kgs × 11/kg]
Direct Labour 27,000 29600
[2 hrs. pu × 15/hr] 900 units [1850 hrs × 16 hr]
Variable O/H 14,400 14800
[2 hrs pu. × 8/hr] 900 units
86,400 97,200
= (Std cost – Actual Cost)
= (86,400 – 97,200) = 10,800A

12. 1(a) 0.925

Capacity ratio = Actual hours for actual output × 100
Budgeted hours
18500hrs
= × 100
10,000units ×2hrs
= 92.5% or 0.925

2.(a) 0.9729
Efficiency ratio = Standard hours for Actual output × 100
Actual hours for Actual output
9000units × 2hrs
= × 100
18500 hrs
= 97.29% or 0.9729

3.(a) ₹ 55,500 Unfavorable

Labour rate variance = (std rate – Actual rate) Actual hrs
= (25 - 28) 18500
= 55500A

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 4.(a) ₹ 12,500 Unfavorable
Labour efficiency variance = (Std hrs – Actual hrs) Std rate
= (18000 hrs – 18500 hrs) 25
= 12500A.

13. 1. (a) Material Mix Variance (Cotton + Polyester) = {(RSQ × SP) – (AQ × SP)}
= {7,08,570- 7,10,000} = 1,430 (A)
Material Yield Variance (Cotton + Polyester) = {(SQ × SP) – (RSQ × SP)}
= {7,51,770 – 7,08,570} = 43,200 (F)

2. (d) Material Price Variance (Cotton + Polyester) = {(AQ × SP) – (AQ × AP)
= {7,10,000 – 6,72,500} = 37,500 (F)

3. (c) Material Cost Variance (Cotton + Polyester) = {(SQ × SP) – (AQ × AP)}
= {7,51,770 – 6,72,500} = 79,270 (F)

Working Note
Material Variances:
Material SQ SQ× SP RSQ RSQ × AQ AQ × SP AP AQ × AP
(WN-1) (₹) (WN-2) SP (₹) (₹) (₹) (₹)
Cotton 9,397 m 4,69,850 8,857 m 4,42,850 9,000 m 4,50,000 48 4,32,000
Polyester 7,048 m 2,81,920 6,643 m 2,65,720 6,500 m 2,60,000 37 2,40,500
16,445 m 7,51,770 15,500 m 7,08,570 15,500 m 7,10,000 6,72,500

WN-1: Standard Quantity (SQ):

Cotton - = 9,396.8 or 9,397 m

Polyester- = 7,047.6 or 7048 m

WN- 2: Revised Standard Quantity (RSQ):

Cotton - = 8,857.1 or 8857 m

Polyester - = 6,642.8 or 6643 m

120 CA/CS Nimeet Piti | | |

 4. (b) Labour Efficiency Variance (Skilled + Unskilled) = {(SH × SR) – (AH × SR)}
= {61,496 – 63,920} = 2,424 (A)
Labour Yield Variance (Skilled + Unskilled) = {(SH × SR) – (RSH × SR)}
= {61,496 – 63,052} = 1,556 (A)

5. (a) Labour Cost Variance (Skilled + Unskilled) = {(SH × SR) – (AH × AR)}
= {61,496 – 62,380} = 884 (A)
Working Note
Labour Variances:
Labour SH (WN- SR SH × SR RSH RSH × AH AH × SR AR AH × AR
3) (₹) (₹) (WN-4) SR (₹) (₹) (₹) (₹)
Skilled 1,116 hrs 37.5 41,850 1,144 42,900 1,200 45,000 35.5 42,600
Unskilled 893 hrs 22 19,646 916 20,152 860 18,920 23 19,780
2,009 hrs 61496 2,060 63052 2,060 63920 62380

WN- 3: Standard Hours (SH):

Skilled labour- =1,115.87 or 1,116 hrs.

Unskilled labour- = 892.69 or 893 hrs.

WN- 4: Revised Standard Hours (RSH):

Skilled labour- = 1,144.44 or 1,144 hrs.

Unskilled labour- = 915.56 or 916 hrs.

14.
1. (c) ` 1,50,000 (A)
Fixed Overhead Cost Variance = Absorbed Fixed Overheads - Actual Fixed Overheads
Absorbed Fixed Overheads = (Budgeted Fixed Overheads / Budgeted Production) x Actual
Production = (` 20,00,000 / 10,000 units) x 9,500 units
= ` 19,00,000
Adjusted Actual Fixed Overheads = ` 19,50,000 + ` 1,00,000 = ` 20,50,000
Fixed Overhead Cost Variance = ` 19,00,000 - ` 20,50,000 = ` 1,50,000 (Adverse)

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 2. (d) ` 1,00,000 (A)
Fixed Overhead Volume Variance = (Actual Production - Budgeted Production) x Standard Fixed
Overhead Rate per Unit
Standard Fixed Overhead Rate per Unit = ` 20,00,000 / 10,000 units = ` 200 per unit
Fixed Overhead Volume Variance = (9,500 units - 10,000 units) x ` 200
= 500 units x ` 200 = ` 1,00,000 (Adverse)

3. (c) 0
Variable Overhead Efficiency Variance = (Standard Hours for Actual Production - Actual Hours
Worked) x Standard Variable Overhead Rate
Standard Hours for Actual Production = 9,500 units x 1.5 hours/unit = 14,250 hours
Variable Overhead Efficiency Variance = (14,250 – 14,250) x ` 50 = 0

4. (b) ` 42,500 (A)

Variable Overhead Expenditure Variance = (Standard Rate - Actual Rate) x Actual Hours Worked
Total Variable Overhead for Actual Hours: (10,000 x ` 50) + (4,250 x ` 60) = ` 5,00,000 + `
2,55,000 = ` 7,55,000
Variable Overhead Expenditure Variance = (` 50 x 14,250 hours) - ` 7,55,000
= ` 42,500 (Adverse)

5. (b) ` 50,000 (A)

Fixed Overhead Expenditure Variance = Budgeted Fixed Overheads - Actual Fixed Overheads
= ` 20,00,000 - ` 20,50,000
= ` 50,000 (Adverse)

15. 1. (b) ` 75,47,750

Funds required for foreign order:
Costs Amounts
Direct material per unit 90
Add: Direct labour per unit 60
Add: special services per unit 40
190
Add: packaging per unit (20%×prime cost,20%×(90+60+80)) 46
Variable cost per unit 236
Total variable cost (236×30,000) 70,80,000
Add: freight 80,000
Add: professional fees 25,000
Add: custom charges (500kg×80%×80×6) 1,92,000

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 73,77,000
Add: shipping ((500×80%)/10)×2,800) 1,12,000
Add: insurance 1,11,000
Funds required 76,00,000
Net amount of interest earned (interest earned in 9.25% and paid is 6.50% for 3 months) =
76,00,000 x (9.25% - 6.50%) x 3/12 = 52,250
So, net cash outflow due to export order = 76,00,000 - 52,250 = 75,47,750

2. (a) $ 4.23
Minimum price :-
Variable cost (net) 75,47,750
Add: fixed cost recovery (110 x 10,000 units) 11,00,000
Add: loss of profit (200 x 10,000 units) 20.00.000
Minimum price 1,06,47,750
Minimum price per unit 1,06,47,750/30,000 ₹ 354.925
Minimum price is $ ($1 = ₹ 83.864) $4.23

3. (c) ` 39,94,250
PROFIT EARNED:
SALES ($4.90 x 30,000 x RS. 86) ` 1,26,42,000
(-) Variable cost (net) (75,47,750)
(-) allotted fixed cost (10,000 units x110) (11,00,000)
PROFIT ` 39,94,250

4. (d) ` 50,94,250
CASH INFLOW:
SALES ($4.90 x 30,000 x RS. 86) ` 1,26,42,000
(-) Variable cost (net) (75,47,750)
CASH INFLOW ` 50,94,250

5. (a) ` 19,94,250
Incremental benefits:
SALES ($4.90 x 30,000 x RS. 86) ` 1,26,42,000
(-) Variable cost (net) (75,47,750)
(-) allotted fixed cost (10,000 units x110) (11,00,000)
(-) loss of profit (10,000x200) (20,00,000)
Incremental benefits 19,94,250

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16.

1. (c) Calculation of actual quantity of materials used:

Standard quantity of material used per units of output
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑢𝑠𝑎𝑔𝑒
=( )
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑖𝑜𝑛

3,750 𝑘𝑔
=( ) = 0.5𝐾𝑔
7,500 𝑢𝑛𝑖𝑡𝑠

𝑏𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙 𝑐𝑜𝑠𝑡

𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑝𝑟𝑖𝑐𝑒 = ( )
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑢𝑠𝑎𝑔𝑒

` 1,12,500
=( ) = 30
3,750 𝑘𝑔

Material usage variance = (Std. qty. for actual output - Actual qty.) × Std. price
3,750A = [(7,750 x 0.5kg) - AQ] x ` 30
- ` 3,750 = ` 1,16,250 - 30AQ
30AQ = ` 1,20,000
AQ = 4,000 kg
Actual quantity of materials used = 4,000 kg

Calculation of actual direct material cost:

Material Price Variance = Actual Quantity purchased (AQ) x {Std. Price (SP) – Actual Price(AP)}
` 25,000F = 5,000 kg x (` 30 - AP)
` 25,000 = ` 1,50,000 - 5,000 AP
5,000 AP = ` 1,25,000
AP = ` 25
Actual direct material cost = 5,000 kg x ` 25 = ` 1,25,000

2. (b)
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 ℎ𝑜𝑢𝑟𝑠
𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 ℎ𝑜𝑢𝑟𝑠 𝑝𝑒𝑟 𝑢𝑛𝑖𝑡 𝑜𝑓 𝑜𝑢𝑡𝑝𝑢𝑡 = ( )
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑜𝑢𝑡𝑝𝑢𝑡

5,625 ℎ𝑜𝑢𝑟𝑠
=( ) = 0.75𝐻𝑜𝑢𝑟𝑠
7,500 𝑢𝑛𝑖𝑡𝑠

𝑏𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑙𝑎𝑏𝑜𝑢𝑟 𝑐𝑜𝑠𝑡

𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 𝑤𝑎𝑔𝑒 𝑟𝑎𝑡𝑒 = ( )
𝑏𝑢𝑑𝑔𝑒𝑡𝑒𝑑 ℎ𝑜𝑢𝑟𝑠

1,12,500
=( ) = 20
5,625 ℎ𝑜𝑢𝑟𝑠

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 Labour Efficiency Variance = Std. Rate (SR) x {Std. Hours (SH) – Actual Hours (AH)} `
3,750A = 20 x [(7,750 x 0.75 hours) - AH] –
3,750 = 1,16,250 - 20AH

3.

(b) Labour Cost Variance = [Standard Labour Cost – Actual Labour Cost]
Labour Rate Variance + Labour Efficiency Variance = [Standard Labour Cost – Actual Labour
Cost]
5,000A + 3,750A = (7,750 x 0.75 hours x 20) - Actual Labour Cost
- 5,000 - 3,750 = ` 1,16,250 – Actual Cost
Actual Labour Cost = ` 1,16,250 + ` 8,750
Actual Labour Cost = ` 1,25,000

4. Standard variable overhead per unit

𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑣𝑎𝑟𝑖𝑎𝑏𝑙𝑒 𝑜𝑣𝑒𝑟ℎ𝑒𝑎𝑑𝑠 𝑐𝑜𝑠𝑡 56,250
=( )=( ) = ₹7.50
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑜𝑢𝑡𝑝𝑢𝑡 7,500 𝑢𝑛𝑖𝑡𝑠

Total Variable Overhead Variance = [Standard Variable Overhead – Actual Variable Overhead]
Variable Overhead Expenditure Variance + Variable Overhead Efficiency Variance = [Standard
Variable Overhead – Actual Variable Overhead]
15,000A + ` 1,875A = (7,750 x ` 7.50) - Actual Variable Overhead
- ` 15,000 - ` 1,875 = ` 58,125 - Actual Variable Overhead
Actual Variable Overhead = ` 58,125 + ` 16,875
Actual Variable Overhead = ` 75,000

5.
(d) Fixed Overhead Expenditure Variance = Budgeted Fixed Overheads - Actual Fixed
Overheads
62,500 F = ` 1,12,500 - Actual Fixed Overheads
Actual Fixed Overheads = ` 50,000

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 14 Marginal Costing

1. A company’s fixed costs are ₹ 5,00,000, the selling price per unit is ₹ 200, and the variable cost
per unit is ₹ 100. How many units must the company sell to earn the targeted profit of ` 2,00,000?
(a) 2,000 units (b) 5,000 units
(c) 10,000 units (d) 7,000 units

2. Ms. Gauri has the business of selling pens. She has setup this pen retailing for over 10 years with
good profit volume ratio. Her average cost from the retailing is ` 11.25 per unit if she sells 16,000
units and is ` 11 per unit if she sells 20,000 units.
For the current month, she also charged ` 5,000 towards depreciation and the rental payment
due.
The excess of sales revenue over the variable costs is ` 3.333 per unit.
You are required to CALCULATE Break-even Point (in units), Cash Break-even Point (in units) and
Profit Volume Ratio.
(a) Break-even Point - 6,000 units, Cash Break-even Point - 6,000 units and Profit Volume Ratio
- 33.33%
(b) Break-even Point - 6,000 units, Cash Break-even Point - 4,500 units and Profit Volume Ratio
- 25%
(c) Break-even Point - 4,500 units, Cash Break-even Point - 4,500 units and Profit Volume Ratio
- 33.33%
(d) Break-even Point - 4,500 units, Cash Break-even Point - 4,500 units and Profit Volume Ratio
- 25%

3. A company’s sales could decrease by 50% before it starts incurring losses. And, for every Re. 1 of
sales, it can contribute 40 paise towards fixed costs and generating profit. For the current year,
the company’s fixed cost amounts to ` 5,00,000. CALCULATE the Projected sales.
(a) ` 10,00,000 (b) ` 12,50,000
(c) ` 20,83,333 (d) ` 25,00,000

4. A meeting of the heads of departments of the Arnav Ltd. has been called to review the operating
performance of the company in the last financial year. The head of the production department
appraised that during the last year the company could operate at 70% capacity level but in the
coming financial year 95% capacity level can be achieved if an additional amount of ₹ 100 Crore
on capex and working capital is incurred.
The head of the finance department has presented that during the last financial year the company
had a P/V ratio of 40%, margin of safety and the break-even were ₹ 50 crore and
₹ 200 crore respectively.

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 To the reply to the proposal of increasing the production capacity level to 95%, the head of the
finance department has informed that this could be achieved if the selling price and variable cost
are reduced by 8% and 5% of sales respectively. Fixed cost will also increase by ₹ 20 crore due
to increased depreciation on additional assets. The additional capital will be arranged at a cost of
15% p.a. from a bank.
In the coming financial year, it has been aimed to achieve an additional profit of ₹ 10 crore over
and above the last year’s profit after adjusting the interest cost on the additional capital.

The following points is required to be calculated on urgent basis to put the same in the meeting.
You being an assistant to the head of finance, has been asked the followings:
1. What will be the revised sales for the coming financial year?
(a) ₹ 322.22 Crore (b) ₹ 311.11 Crore
(c) ₹ 300.00 Crore (d) ₹ 324.24 Crore

2. What will be the revised break-even point for the coming financial year?
(a) ₹ 222.22 Crore (b) ₹ 252.22 Crore
(c) ₹ 244.44 Crore (d) ₹ 255.56 Crore

3. What will be the revised margin of safety for the coming financial year?
(a) ₹ 100 Crore (b) ₹ 58.89 Crore
(c) ₹ 55.56 Crore (d) ₹ 66.66 Crore

4. The profit of the last year and for the coming year are:
(a) ₹ 50 Crore & ₹ 95 Crore respectively
(b) ₹ 20 Crore & ₹ 65 Crore respectively
(c) ₹ 20 Crore & ₹ 30 Crore respectively
(d) ₹ 45 Crore & ₹ 66.66 Crore respectively

5. The total cost of the last year and for the coming year are:
(a) ₹ 230 Crore & ₹ 292.22 (b) ₹ 230 Crore & ₹ 275 Crore
(c) ₹ 220 Crore & ₹ 282.22 Crore (d) ₹ 220 Crore & ₹ 292.22 Crore

5. XYZ Manufacturing Pvt. Ltd is a prominent company in the electric appliances industry, known for
producing a diverse range of high-quality products. The company has built a reputation for
reliability and innovation in the manufacturing of household appliances, including fans, mixers, and
heaters. XYZ Manufacturing Pvt. Ltd is dedicated to delivering products that meet the needs of
its customers while adhering to the highest standards of quality and performance
The company operates a state-of-the-art factory that is fully equipped with advanced machinery
and technology to ensure efficient and consistent production. The factory operates 25 days a

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month, running multiple shifts to meet the growing demand for its products. The company have
spare capacity for additional orders. Each product type-fans, mixers, and heaters-undergoes a
meticulous manufacturing process that includes assembly, quality testing, and packaging.

Cost Category Amount (₹)

Fixed Costs (per month)
Factory Rent ₹ 3,00,000
Depreciation ₹ 2,00,000
Administrative Expenses ₹ 1,00,000
Salaries ₹ 4,00,000
Total Fixed Costs ₹ 10,00,000
Number of units produced per month 10,000 units
(Note: Last month there was an additional special
order of 2000 units which resulted in higher production)
Selling price per unit ₹ 1,500

Additional Info: Raw Materials include Copper, Plastic, and Other Materials. The per unit cost of
Copper is 80 more than the cost of Plastic, while the cost of Other Materials is twice that of
Plastic And the total Raw Material Cost per unit is 210 more than the combined cost of Copper &
Plastic.
The Labour Hour Rate is 100 per hour. The total labour hours used in the last month were 36,000
Hours. The Utilities Cost per unit is 100, and the Packaging Cost per unit is 50. Being a finance
manager of the company, you are required to answer the following:

1. Calculate the contribution margin per unit.

(a) ₹ 550 (b) ₹ 600
(c) ₹ 650 (d) ₹ 700

2. Determine the break-even point in sales revenue.

(a) ₹ 31,28,593 (b) ₹ 25,85,153
(c) ₹ 27,27,025 (d) ₹ 27,05,983

3. If the company wants to achieve a target profit of 5,00,000, what should be the sales
volume (in units)?
(a) 2,000 units (b) 2,727 units
(c) 2,750 units (d) 3,000 units

4. What would be the impact on the break-even point if the variable cost per unit increases by
10%?

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 (a) 2,178 units (b) 2,198 units
(c) 2,248 units (d) 2.258 units

5. Calculate the margin of safety in percentage if the company sells 4,000 units if the variable
cost per unit increases by 10%
(a) 44.85% (b) 42.55%
(c) 45.05% (d) 45.75%

6. Miniso Pvt Ltd a company engaged in the business of manufacturing wireless Bluetooth earphones.
The company wishes to track its operating profitability and the margin it needs to maintain to
sustain profitability in the long run Further the company has adopted the marginal costing
technique to identify and define operational levels. In this regard the company has provided the
following information for the current year:
Opening stock of earphones 30,000 units
Selling Price of the earphones ₹ 450 per unit
Variable costs incurred in manufacture ₹ 270 per unit
Units produced during the previous year 1,80,000 units
Expected production for the current year 2,25,000 units
Expected sales for the current year 2,40,000 units
Fixed cost per unit for last year was ₹ 60 per unit
Expected rise in Fixed Cost 10%
Expected Increase in Variable cost 2.5%

Based on the above information available, the following needs to be determined.

1. The profit that the company will make on achieving its targeted sales amount to
(a) ₹ 1,51,20,000 (b) ₹ 1,62,00,000
(c) ₹ 1,71,45,000 (d) ₹ 1,72,00,000

2. The units to be sold by the company to achieve break even is

(a) 57,600 (b) 87,600
(c) 1,05,600 (d) 96,000

3. The total fixed cost for the current year post the cost increase amounts to
(a) 1,08,00,000 (b) 1,48,50,000
(c) 1,18,80,000 (d) 1,44,00,000

4. The quantity of closing stock and its value amounts to

(a) Nil & Nil (b) 15,000 & ₹ 40,50,000
(c) 15,000 & ₹ 50,62,500 (d) 15,000 & ₹ 58,05,000

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 5. Margin of safety in units
(a) 87,600 (b) 1,52,400
(c) 162,000 (d) 1,60,000

7. Gamma Foods Ltd. produces gourmet snacks. The management is considering whether to continue
producing one of its products, Product P, based on its contribution margin. Below are the relevant
details for the last financial year.

Cost Information:
• Selling Price per Unit: ₹100
• Variable Costs per Unit:
- Direct Materials: ₹30
- Direct Labor: ₹20
- Variable Overhead: ₹10
• Total Fixed Costs: ₹ 15,00,000
• Units Produced and Sold: 50,000 units

Additional Information:
• A market analysis indicates that sales could increase by 10% if they offer a special discount
of 15% on the selling price.
• If the special discount is applied, the company believes that it can keep the fixed costs
unchanged but anticipates an increase in variable costs by 5% due to higher production
volume and potential wastage.

1. If Gamma Foods Ltd. decides to discontinue Product P, what would be the impact on total
contribution margin if the product has a current contribution margin of ₹40 per unit and
total fixed costs are unaffected?
(a) Total contribution margin remains the same
(b) Total contribution margin decreases by ₹ 20,00,000 (right answer)
(c) Total contribution margin increases by ₹ 20,00,000
(d) Total contribution margin decreases by ₹ 15,00,000

2. Calculate the break-even point in units for Product P after the special discount is applied
and the variable costs have increased.
(a) 68,182 units (b) 61,225 units
(c) 60,000 units (d) 40,541 units

3. If the sales increase by 10% due to the discount, what will be the total contribution margin
after applying the discount and the new variable costs?

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 (a) ₹ 15,00,000 (b) ₹ 10,00,000
(c) ₹ 9,00,000 (d) ₹ 12,10,000

8. Gamma Ltd. manufactures Product A, and the company uses a standard costing system to control
costs. The standard cost per unit of Product A includes:
• Direct Material: ₹6
• Direct Labor: ₹4 (0.5 hours @ ₹8 per hour)
• Variable Overheads: ₹2
• Fixed Overheads: ₹8
• The selling price per unit is ₹20.
The company expected to produce 5,000 units in October, with fixed costs budgeted at ₹40,000.
However, due to inefficiencies in labour, the actual labour hours worked were higher than
expected, resulting in a labour efficiency variance of ₹5,000 adverse.
Gamma Ltd. wants to calculate the new break-even point after incorporating this labour efficiency
variance, and how this variance affects their profit margins.

1. What was Gamma Ltd.’s original break-even point before considering any variances?
(a) 12,500units (b) 4,167 units
(c) 10,000 units (d) 5000 units

2. What is the revised variable cost per unit after considering the labour efficiency variance?
(a) ₹12.50 (b) ₹13.00
(c) ₹14.00 (d) ₹15.00

3. What is the new break-even point after factoring in the labour efficiency variance?
(a) 15,000 units (b) 10,000 units
(c) 12,500 units (d) 14,286 units

4. How much additional profit would Gamma Ltd. lose for each unit sold if it fails to control its
labour efficiency?
(a) ₹2 per unit (b) ₹1 per unit
(c) ₹3 per unit (d) ₹5 per unit

9. Popular company produces various articles for student purposes. It has been in industry since last
25 years. Company had a very humble start but gained popularity over the years due to excellent
quality products which were sold at very competitive prices. Company has huge reserves and feel
that it is also obligated to give back to the society from which it has grown.
Last year management decided to produce and supply special quality school bags, water bottles,
& geometry boxes to NGOs, at no price, as a social responsibility. These articles were simple

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looking but were more durable, that would not have wore-off easily and could have been used for
long-term.
This year management wants to add another dimension to this social work. It approached
charitable schools and government run schools and offered them the supply of the same articles,
at cost. This will help students in these schools to get these things at a very low price compared
to market.

The variable costs are ` 100, ` 80, and ` 40 for school bags, water bottles, and geometry boxes,
respectively. These articles are made using a single machine. 0.20 hours of machine operation is
required for manufacturing 1 unit of school bag. Similarly, machine hours required for each units
of water bottle and geometry box is 0.15 hours and 0.10 hours, respectively. Fixed overhead
related to machine is ` 7,40,000 per year. Machine can operate for 8,000 hours in a year.
Company has decided to sell its 80% capacity production in markets. Rest is divided amongst the
2 undergoing social works, equally.
All Schools requests these items in the ratio of [Link], as per their demand by the school students.
Company wants to set a price for these articles to be offered to the schools. Management has
few questions they need the answers to. They assigned the task to their team. Team made rough
calculations but as there were too many people on the team, each came up with different answers.
As a Chartered accountant, you have been approached. Understand the case closely, find the
correct answers and help management to set a price.

1. What is allocated fixed cost per unit of School bags, water bottles, and geometry boxes?
(a) 18.5, 13.875, 9.75 (b) 18.5, 13.875, 9.25
(c) 18.5, 13.785, 9.25 (d) 18.5, 13.785, 9.50

2. If the prices were ` 200, ` 160, and ` 100, what would be the overall break-even point in units
in relation to fixed cost allocated to these supplies?
(a) 308.33 units (b) 500 units
(c) 508.33 units (d) 1,000 units

3. Find out the maximum number of units of each article that can be given at the prices given
in Part (ii).
(a) 61, 92, 154 (b) 200, 300, 500
(c) 101, 152, 254 (d) 100, 150, 250

4. What will be the maximum units that can be supplied to the schools of each article?
(a) 1103, 1645, 2726 (b) 1093, 1655, 2748
(c) 1185, 1777, 2962 (d) 1133, 1675, 2958

132 CA/CS Nimeet Piti | | |

 5. What should be the correct price for each item as per the management's decision?
(a) 118.50, 93.875, 49.75 (b) 118.50, 93.785, 49.25
(c) 118.50, 93.785, 49.50 (d) 118.50, 93.875, 49.25

10. A garment manufacturer has been producing and selling T-shirts exclusively for Indian market.
His T-shirts are made of a specific material which is eco-friendly. It means that T-shirts are bio-
degradable in soil after it becomes unsuitable for use.
This invention has been applauded throughout the country. Owner, Vikas, registered for the patent
rights for his invention so that no one else could use it.
Vikas feels that this invention will also be liked in foreign markets, and thus plans to expand his
business outside India. He feels that US market is the first foreign market he should tap into.

Current cost structure (each T-shirt):

Direct material 90
Direct labour 60
Special service (Used in T-shirt making, 50% fixed) 80
Fixed overhead 50
Administration overhead (fixed) 20
Total cost per T-shirt 300
(+) Profit margin 200
Selling price in India 500

There is no limitation of any resources in India. Vikas is able to sell 80,000 T-shirts each year. He
is currently working at 80% of his total capacity.
After searching for potential customers in US, Vikas received an inquiry for 30,000 units from a
wholesale distributor in California. As per the inquiry, order will be placed if price per T-shirt is
reasonable and the order has to be satisfied in full.
Vikas decided to send a quote and the order was placed by the foreign client, on the same day.
Vikas, without a second thought accepted the order, but did not feel the need to extend the
manufacturing capacity; therefore, he decided forgo a few Indian clients.

This foreign order also required special packaging. It is spent at 20% of the total prime cost per
T-shirt. The production was done quickly and foreign consignment was transported to custom port
via services from a carriage agency. It charged ₹80,000 for 1 truck, whose capacity was 500 kg, to
transport whole of the consignment. Truck was 20% vacant after loading the consignment. Bill of
lading was filed and a professional fee of ₹25,000 for filing this was paid to a Chartered accountant.
Custom port also charged ₹80 per kg per day to handle the material, storing it in warehouse, and
for loading the goods on ship.

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The shipping company, which was booked by Vikas for taking the consignment to US, got delayed
due to bad weather. Stock was held at port for 5 days and on 6th day it was loaded on ship. Shipping
company charged ₹2,800/10kg of goods. Insurance was charged flat at ₹1,11,000.
There is no custom duty on such exports.

1. Vikas had sufficient funds in his hands but he still raised a short-term working capital loan @
6.5% p.a. for the satisfaction of this foreign order because he found a one-time investment
opportunity which was giving him 9.25% returns. Foreign order was accepted on 1st June and
loan was taken on the same day. Repayment of the loan will be made on 1st September. Calculate
net cash outflow due to this export order. Which of the following is correct?
(a) ₹73,91,000
(b) ₹75,47,750
(c) ₹74,76,500
(d) ₹71,06,000

2. What would have been the minimum price that Vikas could have quoted per T-shirt in US dollars?
(exchange rate on 1st June, $1=₹83.86)
(a) $4.23
(b) $4.20
(c) $4.17
(d) $4.05

3. Payment from foreign client was received on 8th October when exchange rate was ₹86 for each
US $. Calculate the profit earned from this export order if actual quoted price was $4.90 per
T-shirt. Select the correct amongst following:
(a) ₹40,65,500
(b) ₹41,51,000
(c) ₹39,94,250
(d) ₹44,36,000

4. What is the net cash Inflow from this export order?

(a) ₹55,36,000
(b) ₹51,65,500
(c) ₹52,51,000
(d) ₹50,94,250

5. What is the Incremental benefit from this export order?

(a) ₹19,94,250 (b) ₹21,51,000
(c) ₹20,65,500 (d) ₹24,36,000

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 ANSWERS

1. (d) 7,000 units

Sales 200
- VC 100
Contribution pu - 100
Sales 100 - 1 unit
- VC 700,000 7000 units
Contribution pu - 700,000
FC (500,000)
Profit 200,000

2. (b) Break-even Point - 6,000 units, Cash Break-even Point - 4,500 units and Profit Volume
Ratio – 25%
Step Formula / Work Value
From averages: FC Solve 11.25−11=
𝐹𝐶
−
𝐹𝐶
⟹FC=₹20,000 ₹20,000
16,000 20,000
Variable cost per unit v 𝐹𝐶
v=11−20,000=11−1 ₹10.00

Contribution per unit (given) c=Sales−Variable=₹3.333 ₹3.333

Selling price per unit p=v+c=10+3.333 ₹13.333
Profit-/Volume ratio (P/V) c/p=3.333/13.333=0.25 25.00%
Break-even point (units) 𝐹𝐶 20,000
BEP= 𝑐 = 3.333 =6,000 units 6,000 units
Cash Break-even Exclude non-cash depreciation 4,500 units
₹5,000→cash FC=20,000−5,000=15,000.
15,000
Cash BEP= 3.333 =4,500 units

3. (d) 25,00,000
Margin of Safety = 50%
P/V ratio = 40%
Fixed Cost = ` 5,00,000
Fixed Cost 5,00,000
Break − even Sales (BES) = =
𝑃 0.40
𝑅𝑎𝑡𝑖𝑜
𝑣
BES = 12,50,000
Margin of Safety = Projected sales(S) – Break Even Sales (BES)
S = BES + Margin of Safety
S = ` 12,50,000 + (0.50 x S)
Or, S – 0.50S= ` 12,50,000
Or, S = ` 25,00,000

135 CA/CS Nimeet Piti | | |

4. Total Sales 250 crs.

Break-even sales (BES) MOS Sales (MOS)

BES 200 Crs MOS 50 Crs
× P/V × 40% × P/V × 40%
FC 80 crs. Profit 20 Crs.

Revised Fixed Cost

Current - 80 Crs
+ Increase - 20 Crs
+ Int. on additional capital (100 crs × 15%) 15 crs
Revised fixed costs 115 crs

Revised Profit
Current Profit 20 Crs
+ Additional 10 crs
30 crs
Revised P/V ratio
If current SP pu assumed – 100 (100%)
 Current VC PV will be – 60 (60%)
 Current contribution will be – 40 (40%)

Then, new SP pu – (100 – 8%) = 92

New VC pu (60% - 5%) of 92 = 50.6
Revised contribution p.u = 41.4
P/V ratio = 41.4/92 × 100 = 45%

1) (A) ₹ 322.22 Crore

Sales Contribution
= Sales
pv ratio
- VC
Contribution 145 Crs 145 Crs = 322.22 Crs
- FC (115 Crs) 45%
Profit 30 Crs

2.(D) ₹255.56 Crore

FC 115Crs
Breakeven Sales = = = 255.56 Crs
p / v ratio 45%

136 CA/CS Nimeet Piti | | |

 3.(D) ₹ 66.66 Crore
Profit 30Crs
Margin of Safety = = = ₹ 66.66 Crs
p / v ratio 45%

4.(A) ₹ 50 Crore & ₹ 95 Crore respectively

refer working above
5.(A) ₹ 230 Crore & ₹ 292.22
Total Cost for Last year Total Cost for Current
year year
Sales 250 Crs. Sales 322.22 Crs.
× Variable Cost (60%) 150 Crs. × Variable Cost (55%) 177.22 Crs.
+ Fixed Costs 80 Crs. + Fixed Costs 115.00 Crs.
Total Cost 230 Crs. Total Cost 292.22 Crs.

5. Let the cost p.u. of plastic = x

 Cost pu of Copper = x + 80
 Other materials p.u,= 2x
Total Raw mat cost = 210 + cost of copper & plastic
x + x + 80 + 2x = 210 + x + 80 + x
4x + 80 = 290 + 2x
4x – 2x = 290 – 80
2x = 210
x = 210
x = 105.

Raw mat cost : Plastic + Copper + Other materials

: x + x + 80 + 2x
: 105 + 105 + 80 + 2(105) = 500

12,000 units - 36000 hrs

Direct labour
1 unit 3 hrs × 100/hr 300

Utilities Cost 100

Packing Cost 50
Variable cost p.u. 950
1.(a) ₹ 550
Selling price p.u 1500
Variable cost p.u 950
Contribution p.u 550

137 CA/CS Nimeet Piti | | |

 2.(c) ₹ 27,27,025
Break-even Sales
Contributionp.u 550
=  100 = 36.66%
Selling price p.u 1500
Fixedcosts 10,00,000
BES = = = 27,27,272 approx
P / U ratio 36.66%

3.(b) 2,727 units

Sales
- Variable costs
Contribution 15,00,000
- Fixed costs (10,00,000)
Profit 500,000

4.(b) 2,198 units

Variable cost p.u. 950
+ Increase + 10%
Revised V.c. p.u. 1045
Selling price p.u 1500
Contribution pu 4500
Fixedcosts 10,00,000
BEP = =
Contribution p.u 455
= 2197.8 or 2198 units

5.(c) 45.05%
Total units sold 4000
(-) Break-even units 2198
Margin of safety units 1802
Mosunits
MOS% =  100
Totalunits
1802
=  100
4000
= 45.05%

6. Opening Stock – 30,000 units

+ Production – 2,25,000 units
- Sales - (2,40,000) units
Closing Stock 15,000 units

138 CA/CS Nimeet Piti | | |

Fixed cost p.u. in the previous year 60
(x) units produced in the last year 780,000 units
Total Fixed cost in the Last year 1,08,000
(+) Increase in the current year 10%
Fixed Cost in the Current year 1,18,80,000

Opening Stock Current Production

SP pu 450 450
(-) vc pu (270) (337.5)
(270 + 25%)
Contribution pu 180 112.5

Sales – 240,000 units

Opening Stock Current Production

30,000 units  210,000 units
n
X Cont pu 180 112.5
54,00,000 2,36,25,000

Total Contribution 2,90,25,000

(-) Fixed Costs 1,18,80,000
Profit 1,71,45,000

Break even points:

Total Fixed costs: 1,18,80,000

Recovered out of Balance from current

opening stock production:
30,000 units × 180 pu 1,18,80,000
= 54,00,000
(-) 54,00,000
64,80,000
÷ 112.5 pu
57,600 units

Break even: 30,000 units

+ 57,600 units
87,600 units

139 CA/CS Nimeet Piti | | |

 Closing stock will be valued @ variable cost:
15,0000 units × 337.5 pu = 50,62,500
Margin of safety units: Total Sales units – 2,40,000
(-) BEP sales units 87,600
MOS units 1,52,400 unit

1) (c) 1,71,45,000
Refer working above
2) (b) 87,600 units
Refer working above
3) (c) 1,18,80,000 units
Refer working above
4) (c) 15,000 & 50,62,500
Refer working above
5) (b) 152,400 units
Refer working above

7. i.(b) Total contribution margin decreases by ₹2,000,000

Current Profit
Contribution pu 40
× Units 50,000
Total Contribution 2000000
If P, is discontinued, then contribution would fall by 20,00,000

ii.(a) 68182 units

SP pu – (100 – 15%) 85/-
VC pu – (30 + 20 + 10) + 5% 63/-
Contribution p.u. 22/-
Fixed costs – 10,00,000
Fixedcosts 15,00,000
 Break-even point = =
Contribution p.u 22
= 68181.8 or 68182 units

iii.(d) ₹ 1,210,000
Revised contribution per unit (refer above) 22 pu
× units sold (50,000 + 10%) 55000
Revised contribution 12,10,000

140 CA/CS Nimeet Piti | | |

8. i.(d) 5000 units
SP pu 20
VC pu : Direct material (6)
Direct Labour (4)
Variable overheads (2)
Contribution per unit 8/-
Fixedcosts 40,000
BEP = = = 5000 units
Contribution p.u 8

ii.(b) ₹13.00
Labour efficiency variance = 500A
 no. of units produced = 5000
Increase in variable cost p.u. 1
Original variable cost p.u. 12
Revised variable cost p.u. 13

iii.
SP pu 20
Revised VC pu 13
Contribution pu 7
Fixedcosts 40,000
BEP = = = 5714.28 units
Contribution p.u 7

iv. (b) ₹1 per unit

Check (ii) above. Increase in cost p.u. is 1.
Thus, if they fail to control Labour efficiency, there will be an increase by 1 Pu.

9. (a) ₹ 92,400
General Administration Overheads
Hiring charges for cars 66,000
Reimbursement of diesel 22,000
88,000
+ GST on RCM basis @ 5% of 88000 4400
Total General Admini O/H 92,400

10. 1. (b) ₹75,47,750.

Funds Required for Foreign Order
Costs Amounts (₹)
Direct material per unit 90

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 Add: Direct labour per unit 60
Add: special services per unit 40
190
Add: packaging per unit (20%×prime cost,20%×(90+60+80)) 46
Variable cost per unit 236
Total variable cost (236×30,000) 70,80,000
Add: freight 80,000
Add: professional fees 25,000
Add: custom charges (500kg×80%×80×6) 1,92,000
73,77,000
Add: shipping ((500×80%)/10)×2,800) 1,12,000
Add: insurance 1,11,000
Funds required 76,00,000

Net amount of interest earned: (Interest earned in 9.25% and paid is 6.50% for 3 months)
76,00,000×(9.25%−6.50%)×3/12=₹52,250
Net cash outflow due to export order:
76,00,000−52,250=₹75,47,750

2. (a) $4.23.
Minimum Price Calculation
Amounts (₹)
Minimum price: - Variable cost (net) 75,47,750
Add: fixed cost recovery (110×10,000 units) 11,00,000
Add: loss of profit (200×10,000 units) 20,00,000
Minimum price 1,06,47,750
Minimum price per unit 1,06,47,750/30,000 ₹354.925
Minimum price in $ ($1=₹83.864) $4.23

3. (c) ₹39,94,250.
Profit Calculation
(₹)
SALES ($4.90×30,000×Rs.86) 1,26,42,000
(-) Variable cost (net) −75,47,750
(-) allotted fixed cost (10,000 units×110) −11,00,000
PROFIT ₹39,94,250

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4. (d) ₹50,94,250.
Cash Inflow Calculation
(₹)
SALES ($4.90×30,000×Rs.86) 1,26,42,000
(-) Variable cost (net) −75,47,750
CASH INFLOW ₹50,94,250

5. (a) ₹19,94,250.
Incremental Benefits Calculation
(₹)
SALES ($4.90×30,000×Rs.86) 1,26,42,000
(-) Variable cost (net) −75,47,750
(-) allotted fixed cost (10,000 units×110) −11,00,000
(-) loss of profit (10,000×200) −20,00,000
Incremental benefits 19,94,250

143 CA/CS Nimeet Piti | | |

 15 Budgets & Budgetary Control

1. AB Ltd. is currently preparing its production budget for product Z for the forthcoming year. The
sales director has confirmed that he requires 60,000 units of product Z. Opening inventory is
estimated to be 6,500 units and the company wishes to reduce inventory at the end of the year
by 50 %. How many units of product Z will need to be produced?
(a) 63,250 (b) 69,750
(c) 50,250 (d) 56,750

2. A business manufactures a single product and is preparing its production budget for the year
ahead. It is estimated that 2,00,000 units of the product can be sold in the year and the opening
inventory is currently 25,000 units. The inventory level is to be reduced by 40% by the end of
the year. What is production budget in units?
(a) 1,95,000 units (b) 1,90,000 units
(c) 1,84,000 units (d) 1,75,000 units

3. If activity ratio of a company is 104% and its capacity ratio is 96%, find out its efficiency ratio.
(a) 99.84% (b) 92.30%
(c) 108.33% (d) 98%

4. A factory has a capacity utilization ratio of 85% and its activity ratio is 95%.
Which one of the following is the efficiency ratio?
(a) 120% (b) 110%
(c) 112% (d) 90%

5. Standard hours required for doing a work is 100 hours and budgeted hours is 120 hrs while the
same work is actually completed by workers in 110 hrs. You are required to calculate the activity
ratio:
(a) 109.09% (b) 83.33%
(c) 90.90% (d) 110%

6. The following extract is taken from the overhead budget of X:

Budgeted activity 50% 75%
Budgeted overhead (₹) 30,00,000 40,00,000
What would be the budgeted overhead for 60% level of activity:
(a) ₹ 32,00,0000 (b) ₹ 34,00,000
(c) ₹ 30,00,000 (d) ₹ 36,00,000

144 CA/CS Nimeet Piti | | |

7. Which of the following statements relating to Zero Based Budgeting (ZBB) is false:
(a) It is a method of budgeting whereby all activities are re-evaluated each time a budget is
formulated.
(b) ZBB attempts to eliminate unnecessary expenditure being retained in budgets.
(c) It is probably the least time consuming and least costly approach to budgeting.
(d) It requires that budgets are built up from scratch.

8. Healthy & Fit Ltd., manufactures sells a single product captioned as 'Exercise bikes'. The estimated
units to be sold in the last quarter of the year are as under:
Particulars January 2025 February 2025 March 2025
Exercise bikes (in units) 1,500 1,800 1,000
The company's policy is to hold closing stock of finished goods at 20% of the expected sales volume
of the succeeding month.
Each unit of exercise bike requires one unit of main body with resistance system & two units of
pedals. Calculate the number of pedals required to be purchased for January 2025 production.
(A) 1,560 pedals
(B) 1,440 pedals
(C) 3,120 pedals
(D) 2,880 pedals

9. A company prepares its monthly production budget using the following policy:
• 70% of the current month’s sales are to be produced in the same month.
• The company maintains an opening finished goods inventory of 6,000 units for June.
• The desired closing inventory for June is 30% of July’s forecasted sales.
The sales forecasts are as follows:
Month Sales Forecast (Units)
May 20,000
June 24,000
July 30,000
August 18,000

What is the production budget for June?

(a) 25,200
(b) 28,200
(c) 27,000
(d) 19,800

10. A company plans to produce 50,000 units during the budget period. To produce 1 unit of finished
goods, the company requires 5 units of raw material, including an allowance for 5% raw material
wastage during production. The company currently has 90,000 units of raw material in stock and

145 CA/CS Nimeet Piti | | |

 wishes to maintain an ending inventory of 1,20,000 units of raw material at the end of the budget
period.

How many units of raw material should the company plan to purchase during the budget period?
(a) 3,45,000 units
(b) 3,50,000 units
(c) 2,80,000 units
(d) 3,70,000 units

11. PJ Ltd. is currently preparing cash budget for the year 2025. An extract from its sales budget for
the same year shows the following sales values:
(₹ ’000)
March 750
April 900
May 1,000
June 600
40% of its sales are expected to be for cash. Of its credit sales, 80% are expected to be realised
in the next month and the balance in the second month. The value of sales receipts to be shown in
cash budget for May 2025 is (in ₹ ’000):
(a) 840
(b) 922
(c) 948
(d) 1060

12. GHI Ltd. is preparing its budget for the coming year. The company is divided into three
responsibility centers: a cost center (Production), a profit center (Sales), and an investment
center (Regional Office). The following information is available:
• Production department's expected cost: ₹5,00,000 (fixed) and ₹50 per unit (variable)
• Sales department expects to sell 12,000 units at ₹150 per unit.
• The Regional Office is expected to earn a return of 10% on the capital employed of
₹20,00,000.

1. What is the total cost for the production department if 12,000 units are produced?
(a) ₹6,00,000 (b) ₹11,00,000
(c) ₹10,00,000 (d) ₹12,00,000

2. What is the budgeted profit for the sales department?

(a) ₹18,00,000 (b) ₹7,00,000
(c) ₹9,00,000 (d) ₹20,00,000

146 CA/CS Nimeet Piti | | |

 3. If the actual sales are 10,000 units, who is accountable for the variance, and in which
responsibility center?
(a) Production department – Cost Center
(b) Sales department – Profit Center
(c) Regional Office – Investment Center
(d) Production department – Profit Center

13. XYZ Limited produces the product P. The cost accountant of the company has to prepare its budget
for a particular year. The following information are made available for this purpose:
The expected sales of the product P is 1,00,000 units during the year at a selling price of ₹50 per
unit. Each unit of product P requires 3 kgs of raw material Q and 4 kgs of raw material R.
The expected stock levels are as follows:
Beginning of year End of year
Finished product P in units 12,000 15,000
Raw material Q in kgs 26,000 20,000
Raw material R in kgs 36,000 42,000
Raw material Q costs ₹2 per kg and R costs ₹3 per kg.
It requires 10 minutes of direct labour time to produce one unit of product P.
Labour cost is ₹50 per hour.
Variable manufacturing overheads are ₹10 per unit.
Fixed manufacturing cost is ₹3,00,000 per year.
Fixed Administration and selling expenses are ₹25,000 per year.

1. The total number of units to be produced of product P is:

(A) 1,03,000 units
(B) 97,000 units
(C) 92,000 units
(D) 1,27,000 units

2. The total quantity of raw material R to be purchased during the year -

(A) 4,06,000 kgs
(B) 4,18,000 kgs
(C) 3,82,000 kgs
(D) 3,75,000 kgs

3. The total cost of purchase of Raw Material Q during the year is -

(A) ₹6,00,000
(B) ₹6,06,000
(C) ₹5,88,000

147 CA/CS Nimeet Piti | | |

 (D) ₹6,12,000

4. The budgeted variable cost of production of one unit of product P is -

(A) ₹46.33
(B) ₹36.38
(C) ₹25.33
(D) ₹36.33

5. What is the budgeted net income for the year?

(A) ₹10,41,667
(B) ₹13,66,650
(C) ₹10,67,000
(D) ₹10,37,000

14.
Allure Metallurgy Ltd. is a stainless-steel manufacturing company which manufactures two grades
of stainless-steel products namely SS304 & SS316 made of a common raw material iron procured
at ₹52 per kg from the market. The usage of the raw material is expected to be at a constant rate
over the entire period. The raw material supplier to the company charges ₹24,000 per order but
its delivery is limited to 1,200 tons per annum. There is no alternate source to procure the raw
material. In consideration of the above limitations, the company decided to review its inventory
management policies for the forthcoming year.
The following forecasted information has been extracted from departmental estimates for the
budget year ending on 31st March 2025:
SS304 SS316
Sales (units) 56,000 86,000
Finished Goods stock increase by year end (units) 1,614 1,215
Post Production rejection rate (%) 3 7
Iron usage in kg (per completed unit, net of wastage) 5.5 8
Iron wastage (%) 8 11

1. The minimum number of units of SS304 & SS316 the company shall produce to justify the
sales forecast would be:
(A) 56,000 & 86,000
(B) 57,614 & 87,215
(C) 59,396 & 93,780
(D) 64,561 & 1,05,371

148 CA/CS Nimeet Piti | | |

 2. The ratio in which the raw material utilized for SS304 & SS316 from the total quantity of
raw material procured, to produce the number of units desired in Q-1 above?
(A) 29.59% & 70.24%
(B) 29.64% & 70.36%
(C) 30.33% & 69.67%
(D) 38.77% & 61.23%

3. Assuming that all the available 1,200 tons of raw material is procured per annum and would
be utilized for production, what would be the raw material needed for production of SS304 in
order to maintain the same production mix arrived in Q-12 above?
(A) 3,26,678 kg
(B) 3,27,209 kg
(C) 3,55,085 kg
(D) 3,55,663 kg

4. Assuming that all the available 1,200 tons of raw material is procured per annum and would
be utilized for production, what would be the raw material needed for production of SS316 in
order to maintain the same production mix arrived in Q-12 above?
(A) 7,50,240 kg
(B) 7,51,460 kg
(C) 8,42,966 kg
(D) 8,44,337 kg

5. Assuming that all the available 1,200 tons of raw material is procured per annum and would
be utilized for production, what would be the raw material needed for production of SS316 in
order to maintain the same production mix arrived in Q-12 above?
(A) 7,50,240 kg
(B) 7,51,460 kg
(C) 8,42,966 kg
(D) 8,44,337 kg

15.
Valley Ltd., a medium-sized manufacturing firm, is reviewing its operational strategy for Q2 of
2025 due to an anticipated rise in market demand for its signature product, ‘X’—a pre-packaged
consumer item. To maintain profitability and manage costs efficiently, the management team is
preparing a detailed budget.

The following information are made available for this purpose:

(a) It expects to sell 50,000 bags of ‘X’ during the second quarter of 2025 at the selling price of
₹ 9 per bag.
149 CA/CS Nimeet Piti | | |
(b) Each bag of ‘X’ requires 2.5 kgs. of a raw – material called ‘Y’ and 7.5 kgs. of raw – material called
‘Z’.
(c) Stock levels are planned as follows:
Particulars Beginning of Quarter End of Quarter
Finished Bags of 'X' (Nos.) 15,000 11,000
Raw - Material 'Y' (Kgs.) 32,000 26,000
Raw - Material 'Z' (Kgs.) 57,000 47,000
Empty Bag (Nos.) 37,000 28,000
(d) ‘Y’ cost ₹ 1.20 per Kg., ‘Z’ costs 20 paise per Kg. and ‘Empty Bag’ costs 80 paise each.
(e) It requires 9 minutes of direct labour to produce and fill one bag of ‘X’. Labour cost is ₹ 5 per
hour.
(f) Variable manufacturing costs are ₹ 0.45 bag. Fixed manufacturing costs ₹ 30,000 per quarter.
(g) Variable selling and administration expenses are 5% of sales and fixed administration and selling
expenses are ₹ 25,000 per quarter.
As part of the budgeting exercise, management is looking for clarity on production needs, raw
material purchases, cost per unit, and profitability to support strategic decisions and investor
confidence.

Based on above information, you are required to answer the following (MCQs 6 to 10):
1. The required production of “X” in second quarter will be:
(a) 45,000 bags
(b) 46,000 bags
(c) 61,000 bags
(d) 50,000 bags

2. What is the quantity to be purchased for ‘Y’, ‘Z’ and ‘Empty bags’?
(a) 1,41,000, 3,92,000 and 74,000
(b) 1,15,000, 3,45,000 and 46,000
(c) 1,30,800, 67,000 and 26,600
(d) 1,09,000, 3,35,000 and 37,000

3. What is the cost of quantity purchased for ‘Y’, ‘Z’ and ‘Empty bags’
(a) 1,30,800, 67,000 and 29,600
(b) 1,09,000, 3,35,000 and 37,000
(c) 1,41,000, 3,92,000 and 74,000
(d) 1,15,000, 3,45,000 and 46,000

150 CA/CS Nimeet Piti | | |

4. What is the budgeted variable cost of producing one bag of ‘X’.
(a) ₹ 5.50 (b) ₹ 4.75
(c) ₹ 6.50 (d) ₹ 6.05

5. What is the Budgeted Net Income for the Second Quarter

(a) ₹ 30,000
(b) ₹ 1,25,000
(c) ₹ 75,000
(d) ₹ 47,500

151 CA/CS Nimeet Piti | | |

 ANSWERS

1. (d) 56,750
Sales budget 60,000
+ Closing stock (65000 × 50%) 3250
- Opening Stock (6,500)
Production Budget 56,750

2. (b) 1,90,000
Sales budget 2,00,000
+ Closing stock (25000 × 40%) 15000
- Opening Stock (25000)
Production Budget 1,90,000

3. (c) 108.33%
Activity ratio = Capacity ratio × Efficiency ratio
104% = 96% × Efficiency ratio
104%
 Efficiency ratio = = 108.33%
96%

4. (c) 112%
Activity ratio = Capacity ratio × Efficiency ratio
95% = 85% × Efficiency ratio
95%
= Efficiency ratio = 111.76% or 112%
85%

5. (b) 83.33%
Budgeted hours = 120 hrs
Standard hours for Actual hours = 100 hrs
Actual hours = 110 hrs
Standard hours
Activity ratio = ×100
Budgeted hours
100 hrs
= ×100 = 83.33%
120 hrs

6. (b) ₹ 34,00,000
in total overheads 40,00,000 - 30,00,000 10,00,000
= =
in % activity 75% - 50% 25%
 4,00,000 per 10% = Variable overheads.

152 CA/CS Nimeet Piti | | |

 4,00,000×50%
Variable O/H =
@ 50% - Total overheads = 30,00,000 10%
₹ 20,00,0000
Fixed O/H ₹ 10,00,000

Variable Overheads = ₹ 24,00,0000

@ 60%
Fixed Overheads ₹ 10,00,000
Total overheads @60% ₹ 34,00,000

7. (c) It is probably the least time consuming and least costly approach to budgeting.
Explanation: ZBB is a budgeting method that requires starting from scratch each year, analyzing
every line of business for its needs and costs, and justifying all expenses for each new period. It
can help companies identify and eliminate unnecessary costs, and focus on high-profit initiatives.
However, it can be problematic to explain very item and cost, and may require training for
managers.

8. (C) 3120 pedals

Particulars Units
Sales 1500
Add: Closing FG (20% of Feb Sales) 360
Less: Opening FG (WN) -300
Production Budget 1560
x Quantity required per unit 2
Consumption budget / Purchase Budget 3120 pedals
Working Note:
Opening stock of Jan = Closing stock of Dec = 20% of Jan Sales
Therefore, Opening stock of Jan = 20% of Jan Sales

9. (d) 19,800
Production = 70% of June sales + 30% of July sales (Closing inventory) – Opening inventory
= 24,000 x 70% + 30,000 x 30% - 6,000 = 19,800 units

10. (c) 2,80,000 units

Raw material required for production (including 5% wastage)
= 50,000 units x 5 = 2,50,000 units
Raw material to be purchased
= Required for production + Desired closing stock − Opening stock
= 2,50,000 + 1,20,000− 90,000 = 2,80,000 units

153 CA/CS Nimeet Piti | | |

11. (b) 922
Cash sales in May: 40% of ₹ 10,00,000 = ₹ 4,00,000
Credit sales from April realized in May: 80% of (60% of ₹ 9,00,000)
= 0.8 × 0.6 × ₹ 9,00,000 = ₹ 4,32,000
Credit sales from March realized in May: 20% of (60% of ₹750,000)
= 0.2 × 0.6 × ₹ 7,50,000 = ₹ 90,000
Total cash receipts for May = ₹ 4,00,000 + ₹ 4,32,000 + ₹ 90,000 = ₹ 9,22,000

12. 1.(b) ₹11,00,000

Total cost : Fixed Cost = ₹ 5,00,000
Variable Cost = 50 pu × 12000 units ₹ 6,00,000
Total cost of production ₹ 11,00,000

2.(b) ₹7,00,000
Sales (12,000 units 150 pu) ₹ 18,00,000
(-) Total Cost ₹ (11,00,000)
Budgeted Profit ₹ 7,00,000

3.(b) Sales department – Profit Center

Explanation: As they were responsible for generating Sales.

13. Part 1, 2, 3
Sales =1,00,000
Clg FG =15,000
− Op FG =(12,000)
Prod'n budget =1,03,000
× kgs req.
Q (3 kgs) R (4 kgs)
Consumption budget 3,09,000 4,12,000
+ Closing RM 20,000 42,000
− Op RM -26,000 -36,000
Purchase budget 3,03,000 4,18,000
× Purchase price ₹2/kg ₹3/kg
6,06,000 12,54,000
Q1 1,03,000=A - refer working above
Q2 4,18,000=B - refer working above
Q3 6,06,000=E - refer working above
Q4. (D) ₹36.33

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 Calculation (₹)
Raw Material: Q: 3 kgs×₹2/kg ₹6
R: 4 kgs×₹3/kg ₹12
Direct Labour: (₹50×10 mins/60 mins) ₹8.33
VOH (Variable Overhead) per unit ₹10
Variable Cost of Production per unit =₹36.33

Q5. (A)
Sales: 1,00,000 units×₹50 =50,00,000
VC:1,00,000 units×₹36.33 =36,33,333
Contribution =13,66,667
(-) Fixed Costs:
Manufacturing Costs =(3,00,000)
Admin & Sales =(25,000)
Profit =₹10,41,667

14. (C) (Refer working below)

Step 1: Sales & Stock Requirement
Particulars SS - 304 SS - 316
Sales 56,000 86,000
Add: Increase in stock 1,614 1,215
→ Production Budget (Net) 97 57,614 93 87,215
Add: Loss 3 7
→ Production Budget (Gross) 100 59,396 100 93,780
× Kgs required 5.5 kgs 8 kgs
Consumption budget (net) 92 3,26,678 89 7,50,240
Add: Loss 8 28,407 11 92,276
100 3,55,085 100 8,42,966
Consumption budget (Gross) (Kgs) 11,98,057
Total Consumption Budget (Gross) = 11,18,051 kgs

2. (B) 29.64% & 70.36%

Qty. for SS-304 required = 3,55,085
Total Qty. = 11,98,051
% Qty for SS-304 = (355085 / 1118051) × 100 = 29.64%
Qty for SS-316 = 100% - 29.64% = 70.36%

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 3. (D) 3,55,663 Kg
Available kgs = 1200 × 100 = 12,00,000 kgs
Kgs allocated to SS-304:
(3,55,085 / 11,98,051) × 12,00,000 = 3,55,663 kgs

4. (D) 8,44,337 kg
Available kgs = 1200 × 100 = 12,00,000 kgs
Kgs allocated to SS-304 = 3,55,663 kgs
∴ Kgs allocated to SS-316 = 8,44,337 kgs

5. (B) 7,51,460 kg
Particulars SS-304 SS-316
Kgs allocated 3,55,663 8,44,337
(-) Wastage 8% 11%
Net kgs (after wastage) 3,27,210 7,51,460
⇐ Kgs required per unit 5.5 kgs 8 kgs
Production (Gross) 59,493 units 93,933 units
(-) Rejection % 3% 7%
Production (Net) 57,708 units 87,358 units

15.
1. (b) 46,000 bags
2. (d) 1,09,000, 3,35,000 and 37,000
3. (a) 1,30,800, 67,000 and 29,600
4. (c) ₹ 6.50
5. (d) ₹ 47,500

Working Note:
(i) Production Budget of ‘X’ for the Second Quarter
Particulars Bags (Nos.)
Budgeted Sales 50,000
Add: Desired Closing stock 11,000
Total Requirements 61,000
Less: Opening stock 15,000
Required Production 46,000

(ii) Raw–Materials Purchase Budget in Quantity as well as in ₹ for 46,000 Bags of ‘X’
Particulars ‘Y’ Kgs. ‘Z’ Kgs. Empty Bags
Production Requirements 2.5 7.5 1.0

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 Per bag of ‘X’
Requirement for Production 1,15,000 3,45,000 46,000
(46,000 × 2.5) (46,000 x 7.5) (46,000 x 1)
Add: Desired Closing Stock 26,000 47,000 28,000
Total Requirements 1,41,000 3,92,000 74,000
Less: Opening Stock 32,000 57,000 37,000
Quantity to be purchased 1,09,000 3,35,000 37,000
Cost per Kg./Bag ₹ 1.20 ₹ 0.20 ₹ 0.80
Cost of Purchase (₹) 1,30,800 67,000 29,600

(iii) Computation of Budgeted Variable Cost of Production of 1 Bag of ‘X’

Particulars (₹)
Raw - Material
Y 2.5 Kg @1.20 3.00
Z 7.5 Kg. @0.20 1.50
Empty Bag 0.80
Direct Labour (₹ 5 x 9 minutes / 60 minutes) 0.75
Variable Manufacturing Overheads 0.45
Variable Cost of Production per bag 6.50

(iv) Budgeted Net Income for the Second Quarter

Particulars Per Bag Total
Sales Value (50,000 Bags) 9.00 4,50,000
Less: Variable Cost:
Production Cost 6.50 3,25,000
Admn. & Selling Expenses (5% of Sales Price) 0.45 22,500
Budgeted Contribution 2.05 1,02,500
Less: Fixed Expenses:
Manufacturing 30,000
Admn. & Selling 25,000
Budgeted Net Income 47,500

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